The typical SMB manager’s approach to IT budgeting used to be pretty straightforward. Keep it lean. Keep it simple. Avoid change as much as possible. Fix what’s broken, and upgrade when only necessary.

And since there’s often a vocal group outside of IT that’s unhappy with change, you would think twice before you made a major investment into a project that might have a disruptive effect. That doesn’t work too well anymore.

Disruptive stays ahead of competition

Disruptive is no longer a bad word. It is almost a mandate. The competitive and efficiency advantages that innovations such as cloud computing offer have become too big to ignore. The other guy is reaping the benefits while your company is stuck in neutral.

At the same time, IT thinking has changed too. People are thinking less about IT as the department that keeps the machines humming, and more as the gatekeepers of a company’s information and process matrix. IT can be a profit center in its own right. IT suddenly has a lot more to live up to—and it needs the means to do it.

How do you break out of just-getting-by, repair-and-replace IT budgeting and create a budget that really makes sense for your business? You can do this in much the same way as other budgeting is accomplished. Start with a solid assessment of needs, benefits, and costs.


Ask the right questions Along the way, it helps to ask a few key questions that can help determine the right spending level for your company.

  • What are the neighbors doing? IT spending varies wildly by industry and business size. There is no universal “right” dollar amount from one company to the next. It’s doubtful that your competitors discuss their spending with you. But new or trending technology initiatives that support small businesses can give you an idea of where you need to invest. Examples are the moves toward hosted applications or a mobile-enabled workforce. (See Transform Your Small Business Through New, Affordable Technology for more data!)
  • How do you expect technology to support your business objectives? Technology is expensive, no doubt about it, but nowhere near as expensive as lost market share or missed revenue projections. Your IT department and the technological tools play a central role in hitting company performance targets. Take full account of that role and spend accordingly.
  • Are you thinking about costs or benefits first? Sure, nobody likes making significant capital expenditures. But, an exclusive focus on cost-cutting or lean operations can be fatal to competitive capability where technology is concerned. The benefits of maintaining an optimal business technology environment are tangible and can have a decisive effect on business results.

What are others spending on IT?

This may sound like a bitter pill, but try to swallow it anyway. No matter how much you’ve spent, you may be underspending. A recent study showed that the size of the average IT team is 3.7 people in North America, but it is 4.4 people in Europe, the Middle East and Asia. That’s seven-tenths more in terms of a worker’s yearly hours that EMEA companies of comparable size spend on innovation, problem solving, efficiency drives, and business automation. For companies with undersized IT departments, it’s a lost opportunity.

Whether you’re working with outsourced or in-house IT, you get what you pay for. The same spend-and-receive principle holds true for investment in development, applications, cloud services and other IT functions.

A properly allocated, right-sized IT budget can have a transformative effect upon your business, particularly if lean years or simple inertia has led your company to slip behind the technology curve. Developing a well-considered IT budget might seem like a difficult task if you haven’t tackled it head-on before. The rewards of IT budgeting are matched by the risks of failing to.

Special thanks to Janet Tyler, COO of Red Level, for the article!