Building a viable IT budget for 2021 in a time of uncertainty: Seven critical steps

2021 will be characterized by more proofs of concept, a demand for easy-to-understand vendor price models, and corporate desires to understand their total IT spend.
Written by Mary Shacklett, Contributor

Although the economy shows some signs of slowing, 2021 IT budgets are expected to maintain 2020 levels, as organizations recognize that it is technology investments that will help them remain competitive.

In 2021, IT budget spends will be diversified over a broader range of categories (digitalization, mobile computing, employee training, for example) than in 2020, when IT budgets were heavily invested in security and cloud services. Security and cloud services will still lead investment categories, but organizations have reached an inflection point and feel they have attained many of their initial goals in these areas.

End users will continue to be engaged in technology decision making. However, there are indications that more organizations want to fully understand just how much they spend on IT across the company. From a budgetary standpoint, this has sparked a movement to consolidate more of the IT spend (and assets) under a single umbrella, with IT in charge.

Also in 2021, CFOs and other technology budget decision-makers will expect more input from successful trials and proofs of concept before they agree to fund new technology. This is in response to the mixed performance of ROI formulas, and also to cost overruns, which have routinely occurred with cloud services.

That's not all. Below are seven additional budget forecasts that IT budget planners should take into account before building a 2021 IT budget.

1. IT leadership growth

Shadow IT isn't going away, but an increasing number of organizations want more accountability for their IT assets. As a result, more companies are investing in IT asset management systems that they ultimately expect IT to run and maintain. In some cases, this is also fueling a movement toward consolidating more IT spends in the IT budget, even if technologies are requested by those outside of IT. By consolidating IT costs, enterprises can begin to understand how much IT that they have under management -- and what it costs them year to year.

2. Be prepared to explain vendor price models

Many organizations have experienced cost overruns in cloud services. Major reasons for this include the complexity of cloud vendor price models and companies' inability to understand it. If you are budgeting for cloud services, a requirement of any vendor should be a clear-cut price model that you not only understand, but you can explain to the CFO and upper management. 

3. Collaborate with stakeholders before presenting budgets for review

Despite enterprise desires to consolidate spends and asset tracking in IT, Shadow IT and end-user engagement in technology purchasing decisions are still very much alive. What has changed is that more end users (and management) want IT to actively engage in preliminary technology decision-making processes so that they can ensure the technology they want to buy can be used with other existing systems. A good approach for IT is to take the lead by visiting various user departments in advance of budgeting to see what types of technologies they're considering for their own business operations.

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4. Understand the role of the CFO

Great CIOs understand the balance sheet and income statement ramifications of IT investments based upon how these investments are expensed (capital, longer-term investments are amortized over a period of years, while operational expenses are expensed within the year's operating budget, for example). 

These CIOs also understand the cost of various financing options and what it's like to stand in the shoes of the CFO -- who is usually the toughest person to sell on a new technology purchase. To ensure that there are no unforeseen technology surprises, many CIOs meet with their CFOs in advance of budget discussions.

5. Use proofs of concept

CFOs and other C-level executives want the assurance that the technologies IT and others propose for budgets will really deliver business value for the company. In some cases, these same individuals (as well as CIOs) have been disappointed by ROI calculations that failed to deliver.

One way around this is to perform proofs of concept with a new technology first -- assuring that the technology can deliver the value everyone believes it will. When you work with a vendor, the ability of the vendor to provide a proof of concept before you buy should be a major consideration.

6. Revisit aging assets

Making sure your house is in order is part of any budgetary process. What aging assets are coming off depreciation schedules? Will this have a favorable impact on budget formation? If assets are coming off the books ask if it needs to be replaced?

Most IT departments keep track of large assets -- but the tracking of old PCs, printers, and other equipment that's collecting dust in the IT storage closet is often overlooked. Don't forget about these items.

7. Plan for a more diverse budget

In 2020, many organizations put a majority of their spend in IT security and secondarily in cloud. Major spending will continue for security and cloud in 2021, but the IT budget will also be allocated for digitalization, mobile initiatives, and investment in staff training and re-training.

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