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PCSSep 13, 20234 min read

Making Smarter Choices: End of Year IT Budgeting

As the year draws to a close, businesses across the world are diving into the annual ritual of budget planning. Among the various departments, IT budgeting is often one of the most critical and, at times, complex tasks. Understanding some of the key considerations and tips to ensure your IT budget is not only optimized for the upcoming year but remains aligned with your business goals is important to start the new year off strong.

What Does an IT Budget Include?

Before we delve into the specifics of end-of-year IT budgeting, let's first understand what typically goes into an IT budget. Your IT budget should encompass all expenses related to your technology infrastructure and services. This includes hardware and software purchases, licenses, maintenance and support contracts, cloud services, cybersecurity measures, vendor management, and staff salaries associated with IT functions.


Taking Control of Your IT Budget

As you wrap up the current year and gear up for the next, it's crucial to have a comprehensive technology audit. This goes beyond assessing just your computers; it includes evaluating your internet services, hotspots, licensing agreements, and more. When was the last time you conducted a thorough and comprehensive technology audit? If it's been a while, now is the perfect time to do so.

Additionally, consider the total cost of ownership (TCO) of your technology investments. This involves looking at the lifespan of your tech assets and their impact on your business. Sometimes, a seemingly expensive technology purchase can be justified when you factor in the human element, such as time saved, increased efficiency, and improved accuracy.


Trimming the Budget Fat

Is your IT budget bloated or suffering from year-over-year expansion? It's not uncommon for organizations to accumulate unnecessary expenses over time. Take a close look at your budget and identify areas where you can cut costs without compromising on essential services. Maybe there are software licenses you no longer need, or you can find more cost-effective alternatives for certain solutions.

One area that often consumes a significant portion of the IT budget is staff salaries. Which brings us to an important question:

What Percentage of an IT Budget Is Related to Staff Salary?

The percentage of your IT budget allocated to staff salaries can vary widely depending on the size and structure of your organization. In general, staff salaries can account for a significant portion of the IT budget, sometimes up to 70% or more.

However, the real question isn't about the percentage but whether your staff costs are justified and efficiently utilized. Are you overstaffed? Do you frequently face staff absences that necessitate hiring additional resources? When someone leaves your IT team, how expensive is it to find and onboard a replacement?

Imagine a scenario where your organization runs multiple sites supporting 50 users, and you need to maintain five servers. At the very least, you would require a network administrator proficient in Exchange, along with a full-time desktop technician. Now, consider having a broader team of outsourced IT professionals at your fingertips 24/7. With no knowledge gaps and no vacation or sick absences to worry about, you can potentially reduce staff overhead and improve IT service reliability.


Reconsider Long-term IT Contracts

Ever been locked into a contract and counted down the days until you can cut ties? How long does it take to evaluate the scope of services you're actually receiving? From phone plans to internet services, you'll know the quality within days. So why lock your business into a year-long IT service contract from the outset? They often exist to guarantee income for the vendor rather than serve your business's evolving needs.

One strategy is to reconsider these long-term commitments and select a shorter contract (if available) to ensure an IT service provider is delivering on its promises. If you're dissatisfied with their performance or customer service within a few months, you could explore alternative options without having to wait out the full year. If you find you like the services, then you can choose to sign up for a longer-term contract.


Evaluate Vendor Contracts:

Are you overpaying vendors for licenses you don’t need anymore? Is anyone reviewing your existing contracts to see if there are better options that meet your organization's needs? Review existing vendor contracts and negotiate for better terms or discounts. Consider consolidating vendors to streamline costs and improve vendor management.


Embrace Cloud Cost Optimization

Optimizing Cloud costs is another effective approach to budget management. Start by identifying underutilized resources within your Cloud infrastructure, and consider committing to Reserved Instances (RIs) or utilizing Spot Instances to unlock significant cost savings. Implement autoscaling, right-sizing, and continuous monitoring to ensure your Cloud resources align with your workload's needs. Prioritizing Cloud cost optimization will build savings into your IT budget while also enhancing your organization's sustainability.


The Tax Advantage

Finally, let's not forget the tax advantage of end-of-year IT spending. If you have extra budget to allocate, most of your technology-related expenses are fully tax-deductible. To maximize these deductions, consider making technology purchases towards the end of the year. Just remember that the equipment should be received at your office before you can fully deduct it.


Successful end-of-year IT budgeting involves a careful examination of your current expenses, a reconsideration of long-term contracts, and a focus on optimizing staff costs. By conducting a technology audit and considering the total cost of ownership, you can ensure your IT budget aligns with your business objectives and positions you for a successful year ahead.

Don't be locked into a rigid IT budget that doesn't serve your needs in the new year.

Contact PCS to take control of your IT budgeting process and make informed decisions that will benefit your business in the long run.