WOOF! Newsletter

December 01, 2011

What to Know Before You Write Next Year's IT Budget

Are you budgeting out the next year's IT expenses? We researched IT spending trends & predictions for 2012-2014. Find out what your competitors will spend on IT in this month's WOOF!.
As the year ends, we start to think about gift ideas, travel plans...and next year's IT budget.

How much should you budget for your IT next year? Can you get by with last year’s budget? Will your competitors outspend you on IT and gain market advantage? What's a good percentage to allocate for IT spend on a per-employee basis? Where can you get reliable industry data on all this to support your budget?

Questions like these need answering, if you want a budget that helps you (and doesn't impede growth).

This month's WOOF! is an executive summary of current IT staffing & spending trends, to help you frame your IT budget.

Trend #1: A Cautious Rise in IT Spending

There are two trends prevailing in IT spending right now. The first is that 60% of organizations say they'll increase their IT budgets from 2012 to 20141.

Industries growing the most are insurance, healthcare, manufacturing, and high-tech1. The insurance industry increased its IT budget 5% from 2010 to 2011. Manufacturing grew its IT budgets by 3.8% for the same period. High-Tech had a 3.5% increase; healthcare, 3.1%. That trend isn't stopping as we head into 2012.

Trend #2: Aligning IT with Business Goals

The second major IT trend is that CIOs want to align IT with their business goals. It's the #1 priority among CIOs going into 2012 & 20132.

They plan to use IT to reduce cost and increase productivity3. Pretty standard goal, but how are they doing it?
  • By using consultants to replace departing workers. It's more cost-effective than hiring new full-time workers.
  • By allocating more of their budget toward new software and cloud-based services (such as Unified Communications). This is the highest spending increase projected, according to statistics4 and our own client requests.
From these trends, we get an idea of who's doing what with their IT budgets. So you know where to start with your own.

But what about the human side? Not just IT staff, but all employees. How much should you budget for their IT needs?

How Much Will You Spend On IT Per Employee?

Let's say we have a 100-person organization. How much should they budget out for each employee's IT needs?

Survey results give us average IT costs between $1,500 per employee5 to $6,667 per employee1. However, these numbers are only for recurring expenses. They cover:
  • Employee PC maintenance
  • Software licenses
  • IT employee salary
  • Web hosting
  • Network support
  • Server & desktop monitoring
  • Communication Lines (often overlooked)
  • Telecommunications
Annual IT budgets must reflect both recurring expenses AND project-related expenses. Project expenses like:
  1. New software purchases
  2. New hardware purchases
  3. Server software licenses
  4. Network hardware
  5. Consultant billing
  6. Network implementations
  7. Software application development (e.g. SharePoint)
  8. Website development
  9. Unified Communications implementation

That's a lot of potential expense to consider. Something you definitely need to budget in. Forrester's Andrew Bartels reports that IT consulting and systems integration – both project-related expenses – saw a 6.6% spending growth for 20124.

How to Work Out the IT Budget

Based on all this information, several things are clear.

One, your competitors are planning for growth. Are you?  A good starting point: Industry averages on operational expense devoted to IT range from 1.6% to 4%1 of annual revenue.

Two, use recurring expenses as a baseline, and then factor in project-related expenses (estimated by your business goals) on top.

Three, if you don't already do so, aim for a 3-year budget for 2013-2015. This is as far out as most statistics will predict right now. And 3-year budgets enable you to 'cushion' operations if there's a network crash or project snag. It also provides a roadmap for your IT plans.

Four, take note. Depending on the size and complexity of your company, it can take weeks to plan budgets on your own. You'll have to review the current budget, see if it's still accurate, tabulate recurring expenses, target areas for cost reductions, see where to plan for future growth, etc.

Someone who has experience preparing IT budgets can help you save a lot of time and provide a valuable second opinion on your IT plans. Senior IT Consultants can take as little as 20 hours (up to around 60) to come in & help you create a 3-year budget, find all your recurring expenses, suggest areas for cost saving, and give valuable feedback on projects to consider. With all the factors discussed here, it pays for itself.

We hope this information helps with your IT budget planning for next year!


1 – IT Spending and Staffing Benchmarks 2011/2012: Computer Economics.com
2 – 2012 Budget, Salary Projections Revealed by Society of Information Management Survey – Enterprise Systems
3 – "2011-2012 Trends in Business and IT" – Results International Strategic Information Management Survey
4 – "Despite Economic Problems, Tech Market Will Continue To Grow In 2011 and 2012" – Andrew Bartels, Forrester Research
5 - itmWEB IT Budget Scoreboard