CXO

10 do's and don'ts for creating your IT budget

If you're struggling to put together a viable IT budget, these pointers will help steer you toward best practices--and away from common pitfalls.

Budgets can make or break your IT department. You'll either wind up with a surplus or a deficit at the end of the year. Which way you land depends upon whether you follow some best practices and avoid the budgetary pitfalls common to business—and especially to IT. Here are 10 pointers to help guide you to a successful outcome.

1: Do plan for disaster

This is one of the biggest traps waiting in the shadows to take you down. If you don't set aside a portion of your budget for disaster planning, understand Murphy's law will most likely strike you and you'll lose a server or two. Ten thousand dollars later and you're back up and running. Always maintain a disaster fund, outside your standard budget. Otherwise, you'll find yourself in quite a spot of trouble when one of those servers goes down.

2: Don't buy like a fanboy/fangirl

Let's face it: We all get gooey eyes over the latest, greatest tech. All that shiny new technology turns us into kids at Christmas. When you wind up with a need, the last thing you should do is turn that need into a shopping spree that eats up a large portion of your budget. If you are easy prey for such things, include that spree in your budget.

3: Don't overestimate your revenue

This is a common pitfall that we can all easily avoid. We always want to be in a position to predict that our yearly profits will soar above last year's numbers. When that happens, we tend to set our budget accordingly. This can get us into trouble. Instead of predicting a massive (optimistic) spike in revenue, be realistic about it and plan your budget according to those numbers. Underestimate your revenue and overestimate your costs and you'll always be safe.

4: Do budget for seasonal fluctuations

This can be a challenge, but nearly every industry suffers from peaks and valleys. Some find the summer months to be slow, while others feel the hit during the holidays. It's almost impossible to predict just how far those dips will go, so you must always budget with those fluctuations in mind. This also means you need to schedule your spending accordingly. Don't put yourself in the position of having to purchase new technology during a slow period or you'll find your department in a bind.

5: Don't go too complex... or too simple

One of the worst things you can do is make your budget too complex or too simple. When you micro-manage your budget by creating place holders for every little zip tie and USB cable, you can easily wind up with a totally inflexible budget. At the same time, don't create a completely generic budget with an overarching line item labeled "Stuff." There's always a balance to be had with the budget. If you use Google Docs, you'll find plenty of spreadsheet templates for budgets here. Regardless of your office suite, you'll find enough templates available to help you get that balance between complex and simple just right. Even if your budget does lean toward the simplistic, you need to add plenty of detail so you know where your money is going.

6: Don't forget taxes

This happens... a lot. You get that budget lined up just right and then BOOM! you realize you forget to include tax expenses. Don't let this happen. Quarterlies come around like clockwork and they must be paid. They also must be placed in the budget. This, of course, is far more important if you are a smaller company. But regardless of size, neglecting that budgetary item can be disastrous.

7: Don't fret the differences

I have never met anyone who was able to balance a budget to perfection... either midyear or end of year. No matter how much time you've spent with those numbers, there will be differences (either plus or minus). You can't get bogged down in those differences (unless they are seriously significant). Instead of fretting over them, use them as a learning tool for next year's budget.

8: Do remember to involve key people

Yes, the IT budget is your baby. But there are resources at your disposal that could go a long way toward helping you craft a spot-on budget that's less likely to fail you. Bring human resources, accounting, sales, and production into an IT budget meeting, and that document you create will better serve you throughout the year. After all, some of those staff members know their way around numbers a bit better than you.

9: Do budget for late payments

You have numbers to meet at the end of the month. The biggest issue is that those who owe you money aren't paying on time. Those untimely payments can wreck your budget. This is a common issue (especially with smaller shops), and there seems to be a never-ending number of possible solutions that may or may not work. What's important here, is to budget with this in mind.

10: Do treat your budget as a work in progress

You should never consider your budget set in stone. If you do, you'll fail to navigate the waters with the necessary flexibility required to A) keep from losing your mind and B) keep from drowning under an ever-expanding loss column. Being inflexible with your budget means you won't allow for movement of funds and expenditures crucial to keeping your department above water.

Other suggestions?

The budget doesn't need to take you down. In fact, if you work it right, that budget could quickly become more friend than foe.

What budgeting tricks have you found to keep you from losing your quarterly mind? Share your advice with fellow TechRepublic members.

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About Jack Wallen

Jack Wallen is an award-winning writer for TechRepublic and Linux.com. He’s an avid promoter of open source and the voice of The Android Expert. For more news about Jack Wallen, visit his website jackwallen.com.

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