Thriving IT in 2023: Insights for the next financial year

A well-planned IT budget is the foundation for achieving your organisation’s goals. It acts as both a roadmap that aligns your IT initiatives with strategic objectives and a measure of the resources needed to keep your systems running smoothly.

Following years of COVID-19 lockdowns, chip shortages, and global supply chain issues (remember the Ever Given?), IT has grown from a cost centre to a business enabler – and forecasters have mixed news on what’s in store.

Global IT spending may focus on competitive advantage

Experts have predicted that IT spending will increase by 5.5% by the end of 2023. Gartner previously predicted that Australian organisations would be a little above this in 2022, suggesting a 6.5% increase.

The most significant increases globally are expected in IT services and software. These changes are expected despite flattening GDPs and high inflation.

Why are these organisations increasing investments in these areas? For a start, many organisations use IT services and software to help streamline common workflows and service delivery. If their internal and external flows are faster and more efficient, that helps them save money – but it also lets them differentiate their value proposition by improving stakeholder experiences.

In short, forward-thinking organisations are planning to use IT to speed things up, deliver better services, and stay competitive.

On their own, these indicators don’t mean much. And chances are that your organisation is doing the same – or is at least considering it. But Australian organisations have just come out of an intense period of constraint, having to do more with less and leaning increasingly on IT to do the heavy lifting – especially with remote work and automation. This experience means that organisations like yours have already seen what’s possible with IT and are now gearing up to put the lessons they’ve learned over the last few years into practice.

In short (again), they’re modernising and using these modernisation projects to help give them an edge. These projects indicate that many organisations are gearing up to secure dominance in their industries, with the winners using IT to provide them with the edge they need.

But before you turn your IT budget loose on grand projects, it’s a good idea to take stock of what the next financial year has in store. The turmoil of the last few years is still being felt today – and proper planning could make the difference between IT success and an undifferentiated service delivery plan.

Key IT budget factors to watch in FY23-24

So which factors are impacting on these spending decisions – and what do you need to look out for in the new financial year?

Exchange rates – ask four banks what they think will happen with foreign exchange rates and you’ll get four different answers. In 2022, the big four agreed on a similar outlook, with ForEx predictions seeing the AU dollar buying between 68 to 73 US cents. Banks cited improving demand for AU commodities, a strong AU economy, and falls in the US dollar as support for these changes. This rate matters for IT departments using SaaS solutions or aiming to purchase hardware or software – as most providers operate out of the US. At the time of writing, the AU dollar currently buys 67 US cents, and two of the big banks are forecasting the AU dollar to be worth between 72 and 74 US cents by June 2024. This change could mean that SaaS solutions, hardware and software may be more expensive in the short term, but putting off any significant purchases in US dollars may pay off in the medium term, as buying power improves over time.

Staffing – many factors are affecting the current state of employment in IT. On the one hand, there’s a skilled worker shortage – especially in cybersecurity and related areas. On the other hand, the CPI rate of 7% is pushing the cost of living up. Combined, these factors mean that staff will likely start seeking wage increases over the next financial year. These market forces could indicate that it’s an excellent time to investigate co-managed IT arrangements to help cover staffing needs, with in-house placements to help backfill empty roles.

Power costs – with shortages of coal and gas caused by Russia’s war in Ukraine, prices for these fuels have increased globally. And as Australia gets most of its electricity from fossil fuels, electricity prices have also increased. In fact, the Australian Energy Regulator (AER) has drafted electricity price increases of between 20 and 22 per cent over the coming financial year. While there is some talk about price caps and market intervention, costs will likely stay high in the immediate future.

Cybersecurity – with the rate and impact of cybercriminal activity continuing to rise globally, Australian businesses can no longer afford to rely on security through obscurity. Information safety is now a standard part of business operations. With the average data breach cost for Australian organisations reaching $2.92 million in 2022 (that’s per breach and per organisation, not an aggregate), you now have over two million reasons to make cybersecurity an ongoing investment.

Popular solutions reaching EOL – two popular Microsoft products (Windows Server 2012 and Windows Server 2012 R2) will end their service life on October 10, 2023. After this date, both products will no longer receive official patches, security updates, bug fixes, technical support, or online technical content updates. IT can upgrade to Windows Server 2022 or purchase Extended Security Updates for three years of security updates. Either way, any IT operations that rely on these products must include this change in their budget for the new financial year.

What these changes mean for your IT budget

IT Purchases (50% difference drawing down over 12 months) – software, hardware, and SaaS solutions provided out of the US will be affected by an unfavourable exchange rate in the short term, but this may improve over the next 12 months.

IT Personnel (+7%) – while it’s not set in stone, the year-on-year CPI increase of 7% gives an indication of what your IT staff may expect to happen to their wages in the new financial year.

Electricity bills (+20%) – unless you can replace your power provider with 100% renewables (or outsource the vast majority of your compute costs), you can expect your IT department’s power bill to increase by around 20% in the short to medium term.

InfoSec (stable, must-have) – according to our IT budget calculations for 2023, you should prepare your organisation to spend at least $150 per month per user on cybersecurity. This amount is an average and does not consider extra measures required by data sovereignty or any requirements that enable you to work directly with government agencies.

Windows Server 2012 EOL (varies) – clients who migrate workloads to Azure will have access to Extended Security Updates for SQL Server 2012, Windows Server 2012, and 2012 R2 for three years after the End of Support dates for no additional charge above the cost of running the virtual machine. Eligible on-prem customers can also purchase Extended Security Updates for their on-premises environment. Licenses are sold in two core packs for SQL Server and 16 core packs for Windows Server 2012. Please see the official Microsoft announcement for the full range of options and pricing.

IT opportunities in FY23-24

Cloud solutions could enable “deflationary” IT – in an inflationary economy, any inputs that maintain or offer lower rates can have a “deflationary” impact on an organisation’s budget – allowing the organisation to postpone or even dismiss increasing its rates.

Given these factors, some cloud solutions can be considered a deflationary force. In an economy undergoing a period of inflation, larger cloud providers are generally holding their rates steady – with some even offering discounts for ongoing contracts. The methods used to keep these rates low include extending hardware lifecycles, investing in sustainable energy to reduce reliance on fossil fuels (and their price fluctuations) and restrained hiring practices.

For organisations transitioning from on-prem-managed IT infrastructure to cloud-managed environments, the promise of lower (or at least stabilised) rates is very tempting – especially coupled with the possibility of automation tools that cloud solutions can offer. Eventually, these prices will increase – but in the next financial year, longer contracts at unchanged prices can help to lock in deflationary savings – if you can successfully manage the risk of underutilisation.

Digital transformation – the COVID-19 pandemic accelerated a shift towards using IT as a transformative catalyst, compelling businesses to examine digital solutions that could help them reimagine workflow efficiencies. Examples include serverless computing for scalability and agility, SharePoint for remote collaboration, workflow automation, and AI to empower data-driven decision-making.

Conclusion

Your IT budget will need to consider a wide range of changes in the next financial year, and the impact these fluctuations can have aren’t always immediately apparent. While it’s tempting to simply cut costs and hope to ride out market frictions, your organisation does so at the expense of potentially missed opportunities. Your IT department remains one of the best ways to enable efficiencies through automation and collaborations, and investing in these areas can help shore up your workflows both now and in the future.