When talking with prospective clients about their IT budget, we generally find they fit into one of two categories. Those that see IT as:
Surprisingly, these two different types of organisations usually spend a similar amount on IT. This is because:
• cost minimisers have more unplanned costs
• cost minimisers ‘save’ money using the salary (and time) of under-qualified internal staff
• cheaper solutions often don’t last as long, leading to more frequent implementation costs
However, the big win for investors comes from productivity, employee happiness and the competitive advantage they can create.
Which just leaves one question. How much should your IT budget plan to spend on technology?
Plan your IT Budget per User
Many businesses like to base their IT budget on a percentage of their expected revenue. However, per user budgeting provides the best guide because most IT components are able to be paid for on a scalable per-user basis.
Even IT expenses that can’t be paid for per user can rise in predictable ways, e.g., internet connectivity costs will increase as more employees require extra bandwidth and a higher need for redundancy.
Similarly, items that traditionally required capital expenditure can now be purchased ‘as a service’ or leased, converting the overall IT budget to a 100% annualised, scalable model.
Below is an example of a typical 100 staff Professional Services firm, with a breakdown by category of their recommended IT Budget.
Connectivity: $100 pm
Connectivity includes everything from the WAN to the LAN. Spending more here will reduce costs elsewhere and create opportunities to leverage technology. Successful companies prioritise employee productivity, spending up to $100 per staff member per month on connectivity to provide fast and reliable connections inside and outside of the office.
Infrastructure: $150 pm
Whether it’s public cloud, private cloud, hybrid cloud, on-premises infrastructure or a combination, it’s important to cover all bases when budgeting here. Be sure to include the cost of licensing, backups and disaster recovery. Moving applications to SaaS can help reduce costs, but these savings should be re-invested in tools like single sign-on for users and SaaS backup services. Budget $150 per staff member per month on infrastructure unless the environment is entirely SaaS-based (in which case budget more for Applications instead).
End User Computing: $150 pm
Most staff have multiple devices including a desktop or laptop and a smartphone. And despite the paperless office being promised for many years, we still have multi-function devices for printing and scanning. To replace devices before they impact on productivity, an amount of $150 per staff member per month should be budgeted.
Communications: $150 pm
Fixed line phones, mobile phones, email, video conferencing, instant messaging, collaboration platforms, intranet, social media and perhaps even a fax number. Most companies have all of these communications methods and it’s important to understand what each is used for and how to rationalise the number of different systems. This starts with budgeting the right amount and choosing solutions that can serve multiple communication purposes. Productive organisations spend up to $150 per staff member per month ensuring the best technology is in place. The difference between spending as little as possible to best-in-class Communications can be paid back by staff being only 30 minutes more productive per month.
Applications: $200 pm
Applications represent the most variable part of the IT budget. The amount an organisation spends on their applications is a good measure of how seriously they view technology as an investment because it’s applications that can generate the most ROI. The uses for applications are endless, including business automation, improving access to information and resources for staff, increasing client engagement, market differentiation, capacity planning, sales and marketing, business intelligence and recruitment.
Decisions about how applications can be deployed should be what 99% of the organisation’s technology discussions are about. If you concentrate on connectivity, infrastructure or what laptop someone has, you are missing the biggest opportunities. Instead, model the business case for investing in applications to improve productivity, revenue and cost savings. Spending less than $200 per staff member per month on software means it’s likely that opportunities are being missed. The best organisations spend far more.
Security: $150 pm
It’s critical to budget specifically for IT security. This involves much more than a firewall and some anti-virus software. $150 per staff member per month is a minimum and is a relatively small overhead to protect the rest of the IT spend, maintain business continuity and meet compliance requirements. Unfortunately, this is where we often see businesses massively undercutting and saving costs. With organised cybercrime increasingly targeting small and mid-sized businesses with ever more sophisticated tools and techniques, IT security should not be overlooked.
IT Operations: $250 pm
The first thing that comes to mind when we talk to clients about managing their IT is the cost of support. But IT Operations also cover everything from developing the IT strategy to managing the third-parties and vendors that create an organisation’s IT environment. If the cost of IT support from a managed service provider (MSP) is significantly less than $250 per month, then someone within the organisation (who may not be an expert) needs to handle the other operational responsibilities not provided by the MSP.
Total per staff member: $1150 pm
Do these IT budgets apply to your size of Organisation?
In our experience, the size of the organisation doesn’t greatly change the overall spend per staff member. Economies of scale in some areas are replaced by increased complexity, compliance and management overhead in other areas. There are always some exceptions. Some businesses, like our own, rely heavily on software and automation, so IT costs may be higher. However as Watts S. Humphrey said 20 years ago, “Every business is a software business”. This still rings true today. If you aren’t maximising your use of appropriate technology, then your competitors are!
Ask us about a Virtual CIO role to develop your IT strategy with on-going management.