IT Budgeting for Software: Not a One-and-Done Deal

Let’s be honest. Budgeting for IT is very difficult. Some don’t know how to do it properly. Worse, some don’t even recognize the need for IT budget planning.

According to Gartner, worldwide IT spending is projected to total $3.8 trillion in 2019, an increase of 3.2% from the expected spending of $3.7 trillion in 2018.

This just shows that the annual IT budget should be considered as an overall investment in capabilities that add business value and provide positive return on investment (ROI) for business stakeholders. It is not a “one-and-done” activity.

Here are seven things to consider during the planning process of your IT budget for software:

1. Create a roadmap

Consider the projects that the IT organization need to accomplish in the next year to attain the three- or five-year goal.

Does the organization have the infrastructure to accomplish the projects on the roadmap?

What are the concerns and pains that were experienced this year that hindered the organization to accomplish its goals? Build the roadmap while considering these questions.

Consider hiring contractors, which should bring highly specialized individuals for the right projects without having to increase the long-term general and administrative expenditures.

2. Consider license costs

This is one budget item that often bites businesses when they don’t plan proactively enough for it.

No company wants the surprise and extreme cost to buy 30 additional licenses all at once.

Have a visibility first if the current inventory is actively used through an effective software usage metering tool.

3. Renegotiate software contracts

The initial baseline assessment of software licenses gives enterprises an opportunity to avoid noncompliance fines by closing any gaps between the applications being utilized and what is under license.

If the true active licenses usage is known, then under-utilized or unused licenses can be eliminated.

Take advantage of contract renewals.

Apply for additional incentives.

Revisit those contracts that charge a fixed enterprise fee and see if the provider can charge based on actual usage instead.

Get more savings in vendor negotiations by using a software usage monitoring tool to measure and calculate true global concurrency of license usage and produce accurate software usage reports across an entire organization.

4. Initiate accountability through IT chargeback

Make departments or project units responsible for their usage by maintaining a level of consistent communication with an accounting liaison to ensure compliance and see if some IT budgets can be pushed into other departmental budgets.

For better valuation of IT services, implement a fair and reliable chargeback mechanism for ongoing measurement, analysis, and reporting to see which assets are in use and how much they cost.

An effective IT chargeback mechanism and a suitable allocation model will foster fairness and help avoid counter-productive behavior among users.

5. Invest in projects that provide positive ROI

The annual IT budget should be thought of overall as an investment in capabilities that add business value and provide positive return on investment (ROI) for business stakeholders. The projects that can bolster this are:

a. Status quo projects – It covers people, facilities, IT infrastructure, third-party services, applications, and their support and maintenance.

b. Business projects – These are things that bring in new customers and revenues, make individuals or companies to become, and remain, customers, and use technology as a digital backbone that helps the business become faster, cheaper, and better.

c. IT projects – replace personal-productivity devices and software on an agreed cycle, improve enterprise-wide IT support and services, and leverage on new technologies and business-focused proof of concept.

d. Cost-saving projects – replace on-premise software with cloud-delivered alternatives or undertake application rationalization before a technology refresh.

6. Consider cyber security

Security can make or break the product or service. So, it’s important to devote adequate internal resources to staying up to date.

Security should be taken seriously.

According to The Software Alliance (BSA), malware attacks can cost a company $2.4 million on average and take up to 50 days to resolve.

IT teams need to use the best suite of tools available to protect against growing cyber threats.

7. Identify priorities

IT priorities usually include customer-facing features, internal operational enhancements and strategic innovation initiatives.

Their importance is relative to customer needs, cost-management goals or new market opportunities. It’s crucial to identify the priorities that drive near-term customer value without sacrificing the time spent on longer-term initiatives.

Wrap Up

Practice makes perfect. Strive to create your IT budget around the same time each year.

Reducing IT costs doesn’t necessarily mean chopping away expenses. Ultimately, your IT budget should reflect what your organization needs from IT to meet its expectations.

Learn more about how software usage metering can help you effectively plan for your IT budget.

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