Recently you may have been promoted to IT Manager, Director; maybe even CIO, since then you have been buying books on IT Management and over many sleepless nights, trying to prepare yourself for the endeavors that are ahead of you.  After all of your reading, and all of your research; the gleaming question that still racks your brain is, how much money can I spend?

Through your start as Systems Engineer or Database Administrator at your company, you may have always felt guilty about the cost of the components you need to do your job. A network monitoring tool with a $10,000 price tag or Microsoft Licensing at $50,000 just for your company to be able to host its own e-mail system – that is an enormous cost when you consider what your annual salary is and an even larger cost when you consider how many other things you NEED to buy to be a high performing IT organization.

Well, let’s clear the blurry line and figure out the true cost of a dollar when it comes to IT spend for your organization.

First, you need to know how much money or revenue your company pulls in on an annual basis. If your company is not so great at maintaining or defining budgets, casually ask your Finance Manager the approximate annual revenue of your company. He or she will know the answer to that question because the owner or board of directors are requesting that number from them regularly as that is one of the defining metrics of any organization. Once you have that number, take a look at the table below:

Annual Revenue $50,000,000 $60,000,000 $70,000,000 $80,000,000 $90,000,000 $100,000,000
Beginning of IT Spend Range $2,000,000 $2,400,000 $2,800,000 $3,200,000 $3,600,000 $4,000,000
End of IT Spend Range $3,000,000 $3,600,000 $4,200,000 $4,800,000 $5,400,000 $6,000,000

On average, your IT spend or IT budget should be between four and six percent of your companies’ annual revenue. Depending on your industry, you may be lower or higher than average.

Now again, consider your annual salary; two million dollars may seem like an astronomical number if you’re working for a $50 million dollar organization and you might be getting excited; don’t go requesting that PO for the $500,000 core network upgrade just yet. That number needs to cover everything you need to maintain and operate a well performing IT organization from staff, internet service, training, support agreements, upgrades and software renewals for Critical Business Systems such as your company’s financial software. When you start adding it all up, two million dollars may not go as far as you had thought.

Where can you go from here? Well, since you have a good idea of the amount of money you’re looking to spend, get that money allocated and determine where your gaps are; where you can possibly spend more to further enable your company or re-evaluate certain items for a possible overspend (like smart phones); Write it all down! Use Excel; ask your companies Finance Manager what the official\unofficial budgeting process is – if you need assistance or you need an advocate to get IT a seat at the budgeting table, contact us.