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How to Plan your IT Budget

Scarlet Pruitt

Small business owners are accustomed to drawing up an annual budget for overhead and other operating expenses, but when it comes to IT planning the procedure is not always as straightforward. Technology can be a difficult line item because it combines current IT maintenance with longer-term planning, and business necessities with business development.

Fortunately, there are some basic guidelines to follow when laying out your IT budget. First, calculate your technology costs from the previous year (if you have them) and this will give you a good range to stick to, unless you are planning a major change in your IT strategy.

Assuming you are planning for moderate growth, set up a category for IT maintenance and support and one for new technology expenditures. First, calculate the maintenance and support of existing equipment, as this number will remain roughly the same as the previous year.

If you plan to purchase new systems or services to replace or add to current assets, calculate the cost of the technology and then budget for installation and maintenance. Depending on the complexity of the new systems, you may also want to budget for testing and possible downtime, making sure to give yourself a cash cushion in case something takes longer to set up and install than you had originally expected.

After you have calculated relatively standard IT purchases and maintenance costs for the year, create a budget line for technology development. This category is for longer-term IT planning and could include new IT projects or major system upgrades. This category is separate because it deals with business development rather than the maintenance of current business operations.

If you don't know exactly what kind of technology you require to grow your business, or aren't sure how much it will cost, you'll have to go through a few extra steps to draw up a realistic IT budget.

You will probably want to write a Request for Proposal (RFP) that lays out your technology needs, project requirements, and desired deliverables. (There are several good sources on the Web that provide sample RFPs if you're not sure how to do this.) Once you've completed your RFP, you can shop it around to various technology professionals who will give you a budget and timeline for the project. You may get some wildly different estimates, but at least you'll have a rough idea of the cost and time required. While you're collecting estimates, ask about the potential maintenance and support costs of the technology in question so you can factor these into future budgets if you give the project the go-ahead.

This may sound like a lot of legwork, but don't get discouraged. Remember, you are going for rough estimates and you'll probably want to err on the conservative side.

If this is the first time you've created an IT budget, expect to miss it and plan for the contingencies. You are less likely to be hit with big surprises this way, and by exploring other budget possibilities you'll open yourself up to a range of options you would have perhaps overlooked. For example, the possibility of costly technology expenditures could lead you to look into lease options or outsourced services that better suit your needs.

If you have a relatively new business, it might take some time to figure out exactly what your IT requirements are, so anticipate a learning curve.

If your business is more mature, and you find keeping track of various projects to be a burden, there's always IT budgeting software to help you out. Either way, once you get into the habit of planning your IT costs, the budgeting process will become easier and probably more accurate.

In order to grow your business, it is crucial to lay out a technology investment strategy that aligns with the specific goals of your organization. Be sure to read How to Develop a Technology Investment Strategy for more information.

Scarlet Pruitt is a freelance writer and business consultant based in San Francisco. She has covered business and technology for publications in the U.S., Europe, and Latin America.

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