Making Money Work for You: Budgeting for IT Growth

Making Money Work for You: Budgeting for IT Growth

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Good morning. My name is Daniel Buchanan and this is June and July's webinar for Stringfellow Technology Group. So you've come to the right place if you wanna learn a little more about making money work for you. We want to cover a wide range of topics that are helpful to business owners in making decisions with their information technology. So as your business grows, it is going to become more and more important that you get a good budget in place.

  • You want to budget for growth.
  • You want your company to grow and you need to plan for that growth.
  • You don't need to wait and see what happens, then be confused as to where the money's gone!

You need to lay out a budget proactively on the front end. And so I'm here to help today. I'm your trusty, internet vCIO, Daniel Buchanan, and I am more than happy to help your company to come up with some sort of a budget. So of course this will not be a comprehensive budget for your entire company and this will not be specific to you. This is going to be general advice. So if you want to work on something specific, get with me, send me a message and I'll be more than happy to talk with you about that. So the first thing that we probably need to discuss is what is a CIO.

But what is a CIO?

Well, a Chief Information Officer (CIO) is a professional working with information technology and computer systems. They help to support and accomplish goals. For the company they work for (or companies in my case) by managing resources. And these resources could be computers, networks, software, license, or lots of other fun things that we have to manage.

Definitely not human resources. That's a different group. These are IT Resources. Our users are not real people. They're just little pieces of software on a computer somewhere. Of course the CIO is charged with guiding companies on how to best use resources so that they might be able to make more money. Spend the right money in the right places to grow the company. And a lot of times the CIO will attempt to give advice based on the current needs or plans of the company: the big picture strategy that's going on at the C level. So the duties of a CIO are to align the company strategy with the technology strategy (which we have a little more control over).

We also do resource management, resource management is probably not the most exciting thing to talk about. So we won't talk about that for very long, but then we're also charged with budgeting and budgeting can be very important as we will see here shortly. So let's just get into it.

What is a budget?

We'll do a little bit of a refresher. I'm not an accountant. So I encourage someone in the comments to give me a better definition of a budget. But from my understanding of being in business for the last 18 years, a budget is an estimate generally. It's an estimate of your income and your expenditures over a set period of time.

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So you might have a budget for the next year. Or the next fiscal year, you'll hear people say fiscal year. And that just means their year doesn't start on January. It might start in July. So, and the reason I say that it's an estimate is because generally the budget is looking forward and it's really hard to try to plan for what's gonna happen in the future.

There are all kinds of things that happen that we can't plan for

We have to make our best estimates based on previous years. We know reporting from the previous years what our income was and what our expenditures were. And this is the point of budgeting: To make the money work for us.

Let's put it into the right things to grow the company. Let's not just wait and see, but let's predict and plan and forecast you with me so far. So one important part of your budget is your IT budget. This is a graph that we found from Deloitte: Average IT budget as a percentage of revenue. So as you can see banking and securities, it's almost 8% of their revenue all put right back in. You can imagine with all the security services, the compliancy, auditing that banks have to go through. And then now at the bottom, you know, construction and infrastructure might not have as big of a spend on a lot of those companies.

This of course is averages across a lot of different industries and the average for all industries is 3.64. So what a lot of people get confused is they think that they have an understanding of what their IT budget is. So let's just say, you know, you have a company, a hundred million a year company. And they're thinking, well, 3.6, 4%, they should have a 3.6, 4% budget on IT, but then they start to look at what some of their expenses are. And they're like, well, that's not right. Well, they're probably not doing a comprehensive budget. They're probably not pulling all the numbers in for all of the IT related expenses.

So it's really important that your budget be comprehensive, that it include all IT related expenditures. So this is everything too. This is, you know, all also labor software license, things that we need before the resources. So this might be the cost of rolling out some software, implementing some software. Taking the company to the next step. We're gonna do a migration to the cloud. We're gonna migrate some, some of our services to the cloud. This is where we start to look at at these kinds of numbers. So, what I'm going to make the case for today is the need for a comprehensive IT budget.

So what is a comprehensive IT budget?

Well, we'll get into that in a second, but generally we're trying to get to the total cost of ownership.

Like what does it really cost to have the IT that we have, and you need an accurate picture. If you don't have an accurate picture, you don't know where the money is going. You're not accurately tracking your expenses. And if you are accurately tracking, you can understand better the return that you're getting on your investment. So the investment that you put into information technology, your CIO's department, the IT department you know, how are we getting paid for. What is that giving us? Is that giving us better Security? Is that giving us productivity is that helping us with some other aspect of the company.

And then of course IT also helps us make better decisions.

If we have a comprehensive IT budget, we know what things are earmarked on the budget to be spent money on. And we might be able to just pull back and say, Is this a good way to keep spending this money?

Can we start to try to think about maybe moving things this way? Do we really need to get another server? Is it really important that we keep that PBX in the hall, you know in the phone closet, down the hall are these, some of the things that we need to start to think about. So one of the things I wanted to mention here:

How a company classifies IT costs.

So the two kind of big ways that we see companies sort of philosophically approach IT is IT a cost center or is IT a growth center? And you'll hear this talked about a lot. If you're just looking at IT as a budget, you might just think, well, IT is a cost center. We need to save money. What can we cut? I don't see any value in this random piece of software that we're having to pay extra for. Let's just cut that. IT doesn't do a lot for us anyway. And then a lot of the cost focused companies that I've dealt with in the past. They just wanna buy the cheapest option. It's like, everything is the same. Let's just buy the cheapest option. What can we just get by with what's good enough.

And then there are some companies who are forward facing and smart enough in my mind to see IT as a growth center.

To see, "Hmm, here is a place that we have a lever on how much money we can make!" It's called it so we can make our people work faster. We can enable them to work from wherever we can buy more customers. We can help our people to do things that they didn't use to do. So this is the way I think about IT. I think of IT as a growth center.

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So from just the most simple example, think about this. You have a computer you need to buy for an employee, you get the cheap computer. The employee spends all day cussing at it and waiting for it to catch up to them, or you get the nice computer and they can do their job and they can. Their job twice as fast and they have a very good quality of life while they're at work. And they are able, able to get done what they need to get done in a timely manner.

So that's just one example, one very tangible, easy to understand example: workstations. They're not the sexiest thing in the world, but they're still very necessary. So your software is like that. Multiple degrees in productivity up. So if you get a piece of software, it might enable your company to work in ways you never thought about. It might help you to understand your market, to interact with your customers in ways that you are not doing now.

It also gets to the point at a certain level where you can start to automate.

Some of the it functions and that automation is not cheap and it's not free and it's not easy. But with that, you now have an automated process. You now have an automated system that works all the time for you. That works while you're not looking at it. So these are the kinds of things. That if a company can just kind of get their mind into thinking about IT as a growth center, here's a place that if we invest money into it, our company can grow.

Okay. So the thing that separates and I'm kind of biased in this, because I'm a technology person, but the thing that separates. The little guys from the big guys are how much they're spending on their, their technology. So think about the biggest companies we can imagine. Dell, Microsoft, apple, Google. I hate to tell you, they're spending a lot of money on technology. So just something to think about for your, for your next budget. Here's some common IT budget items. Hardware. This is kind of some of the obvious stuff. Servers, network gear works stations. This is like the nuts and bolts. This is probably what you're working on right now.

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Software, you might have license fees.

You might also have implementation fees for rolling out something new or implementing something that you've already got. You're already paying for. You're just not using it. And then service. So hopefully you have an IT management company in place. Hopefully you've got a strategy in place and you have goals set for the next year and quarter quarterly, you know, milestones to get to those goals.

But then you might have software as a service SaaS, you might have some SaaS apps that you use. Some common SaaS apps. Folks use nowadays are Microsoft 365 Salesforce, QuickBooks online. Everybody's going to the business model. That's what the modern software paradigm is. Everybody wants their software to be SaaS. It's about impossible to get a piece of software and install it on your computer or install it on your server anymore. That's just not the way it works. So these are some of the items you, you probably are thinking about that are, you know, a little bit you know, as we say, low hanging fruit. Kind of obvious things.

So what are some commonly missed budget items?

So if you are truly trying to get this comprehensive budget and you want a big picture view of all of the expenses for your IT, well, here's some things you might not be thinking about. Are you tracking the power for your server room?

So if you have a server room and you've got multiple servers in. What is that costing you? It's not a big deal. Put on a little meter, little IOT device that can track how much electricity is going through there and report it back to you because you know what your utility bill is, but you might not know what your IT network closet is costing.

You might be good to know because you might not be. Calculating that, that amount you might have a dedicated AC unit in there, and that AC unit requires maintenance. It requires work to be done on it. You know, you have to do things, your phone bills. So a lot of times people don't consider their phone bills part of their IT, they just think, well, it's the phone company. You got to, you know, you got to pay the phone company, but that's not always the case anymore. We can help a lot with phone bills to make your service better and more quality calls, more accessibility for people making and receiving phone calls.

There is so much automation that can happen with telephony these days with phone service, also your internet service providers. This is something that sometimes people won't think about needs to be in their, their IT budget, but your internet service provider is very important. You might be overpaying, you might be underpaying. You might not have two internet connections, which we recommend two internet connections. So you might only have one. And then that's a single point of failure for you.

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You might have shadow IT costs.

So what is shadow IT? Shadow IT is: well I'm just gonna install Dropbox on my computer and back up all the files to Dropbox because I don't trust the internal systems to store my files. I don't trust SharePoint. I don't trust Citrix Sharefile, or I don't even know about them and I just want to use my own system so that I can get to them on my phone. And so I go and I've download box.com or Dropbox, or my own personal OneDrive and or some other piece of software that you don't even know about.

What shadow IT does is it's just a user or somebody pretty technical in the company who's going and they're making their own IT decisions outside of their IT. Usually causes some fragmentation because there might already be a solution for that. They're now storing data in another place and that data might not be reported to for the rest of the company to use. It might be the beginning of a silo of the person kind of becoming a silo or a department becoming a silo. But if nothing else, it's just, you know, it's lost sunk costs that you can't find that are just kind of going away, that aren't being reported.

And then finally, one last example is the, you know, cybersecurity insurance premiums. There are very, very good reasons to have cyber security insurance these days. We won't go into those, but if you have, they should probably be included in your your IT budget because they are definitely determined by the security structure and the IT structure that you have in your company.

So they may want to charge you more. If you still have a server, they may want to charge you more. If you have a VPN or RDS or RDP, you got people dialing in remotely to work at the office. That's gonna probably cost you a little bit more and who knows how much more it might be $10,000 more a year! You can spend that money somewhere better get your people to the cloud and then you don't have the same expense of cyber security insurance. Nobody likes to just pay insurance companies. I know a lot of insurance people and I love what you do and I appreciate your help, but that's not what we wanna be spending money on.

So and then of course there's a lot of other commonly missed items

I would welcome any comments that you can put in my video. Some of the commonly missed budget items you may have come across in your adventures in IT. So here, I've got this sample budget that I want to come up with and this is probably gonna be the most exciting part of the video.

So I've got "Acme Mechanical Widgets, INC." They've got 50 people. This is a sample annual budget for, for next year, for 2023. So you've got your IT staff payroll on there. Very important. Put that on there, your AT&T fiber internet bill. Very important. Put that on there, your voice bill.

By the way, these numbers, I just totally made up. I don't know if they're accurate or not. I can't get you quotes on any of this stuff. So I'm just totally pulling these numbers out of kind of what I thought would be about, you know, an average spend.

You know, you've got your your software license that you're paying for your 50 employees. You're tracking your electricity to your server room. You've got your HVAC in there, your cyber security insurance premiums, your alarms, your access controls $1,200 there, your network management. And then of course you've got your annual hardware budget. So you're budgeting hardware annually and that might be servers that might be network switches and firewalls. That might be you know, workstations if, if nothing else. As you can see there, they've got a total budget down there at the bottom $269,200. So you think:

  • What can you do to this budget?
  • How can we tweak this budget to make it better for the company?
  • How can it produce more for the company?
  • How can we have better investments?
  • How can we have a better return on investment for what we put into our IT budget?

So that's a whole other discussion and I'm coming up on 20 minutes now. And I want to just wrap this up. But I most definitely want to welcome and keep the conversation going in the comments. Let's talk about some of these items. Yes. I might have forgotten a few items in my budget, but I just wanted to facilitate a discussion. So I hope this has been useful to you. If you would like to continue to discussion, please reach out to me. Anytime on LinkedIn. We can set up a consultation call. I would love to talk more with you about your budget and about your IT budget and how you're spending your money, how to make money work for you.

Let's make money make money for you.

Let's let's have IT be a growth center and produce funds for your company.