A company’s IT budget is like fuel for a car. Just like how a car won’t start with an empty tank, an IT project can’t commence without funding.
However, getting a project approved requires developing a proper budget plan. Budget management requires careful planning and deliberation, with many things to consider: material and equipment costs, human resources, and revenue. Moreover, companies often fail to account for optimization tools, which should always be included within IT project budgeting.
How can teams develop effective and convincing IT budget plans that take all relevant variables into account?
The Main Purposes of an IT Project Budget
A project’s budget is the combined cost of every activity, task, and milestone that the project must achieve. When budgeting, companies must always consider IT spend as a percentage of revenue, and must find a way to set aside a substantial amount for future projects.
There are three basic reasons for creating an IT project budget:
- It helps secure project funding. Before undertaking a project, the budget appropriated for it must receive approval from the company’s stakeholders. A detailed budget plan tells stakeholders exactly how much, where, and when money is needed.
- It provides the basis for project cost control. With an end budget estimate in hand, you can measure the project’s actual cost and make sure you aren’t burning through your approved budget. This allows you to make adjustments as needed.
- It has a direct effect on a company’s financial viability. With resource constraints and calculated feasibility, a project budget helps increase the operating margin. This in turn improves the overall success of the project.
IT projects can be classified as either a CapEx (capital expense) or an OpEx (operating expense) project. An OpEx project involves expenses incurred during regular business, which includes general and administrative expenses, R&D, and product cost. Meanwhile, a CapEx project involves the purchase of new assets, such as equipment and facilities, that will produce a long-term benefit for the company.
For SaaS industries, CapEx projects are more commonly used to purchase physical servers and facilities to support on-prem infrastructures. In contrast, OpEx projects are often utilized by cloud-native or hybrid infrastructure companies because of the OpEx business model adopted by cloud service providers.
OpEx costs can become devastating to SaaS companies if not monitored properly. Learn more about this here.
The Four Stages of the IT Budget Process
Even though CapEx and OpEx business models vary in approach, care and scrutiny should be taken when budget planning using either model. This is especially true for cloud projects.
Enterprises operating in the cloud are in danger of runaway costs and wasted resources if careful planning is ignored. Many cloud-based companies have experienced surprisingly expensive cloud bills from their cloud providers because of overprovisioned resources and unoptimized clusters.
So how do you make an IT project budget?
The first step is to create the budget, starting with careful thought at the ground level. How much income is needed? What tasks are you budgeting on? Are there milestones you need to achieve? What new initiatives can be started? Create a scope and write down everything your team needs to do.
A typical IT budget breakdown involves the following:
- Human resources: salary rates of full- and part-time employees.
- Material resources: any items needed for the project, from software to hardware and everything in between.
- Research expenses: data and studies that support your