“I have no clue what’s in the IT budget, or why it is what it is.”
Sound familiar?
Historically, CFOs have treated IT spend like a game of whack-a-mole, quickly shoving it back into its black box when it rears its ugly head. But the harsh truth is: It’s a modern CFO’s responsibility to know what’s in the budget and why.
You don’t need to be able to code a website page–or even use the printer–but you do need to be able to work with your organization’s tech leaders to build an IT budget. Here’s how to create an IT budget that supports your company’s ability to grow, efficiently operate, and stand out among competitors.
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Download our free workbook with three real-world approaches to IT budgeting, or keep reading for the full context.
Download the TemplateIT Budget Planning: Start with Strategy, Not Numbers
The best IT strategy is the one that aligns with your organization’s overall goals. While it’s tempting to start with a number, you can’t budget effectively if you don’t know what you’re budgeting for.
Sit down with your head of IT and department leaders and get clarity on these two questions:
1. Is the company in downsize, maintain, grow, or transform mode?
Growth- and transform-mode companies invest most heavily in IT. Downsizing- and maintaining-mode businesses tend to have a smaller budget.
2. How can the IT strategy support this business mode?
The strategy should fuel the business strategy, not follow it.
These answers are essential for building a strategic IT budget.
How much should you spend on IT?
The average IT budget as a percentage of revenue is not a “one size fits all.” What matters more is the context around your company’s size, industry, technology maturity, and, of course, its current mode.
Use these IT spending benchmarks as guideposts, not goals:
- Low end: 3%. Less tech mature or downsizing companies.
- Middle: 3-6%. This is where most stable, mid-sized organizations fall.
- Higher end: 8-10%. Reserved for tech-forward or rapidly growing companies.
If you’re still not sure what you should be spending, our technology experts can help. We’ve partnered with 100s of companies to build IT budgets that work for their unique circumstances.
What to include in your IT budget
- IT personnel salaries
- Hardware
- Software licenses and subscriptions
- Infrastructure
- Vendor contracts
- Security and compliance
- Employee cybersecurity training
- Continuing technology education
- IT projects
- Technical support and maintenance
- Shadow IT – These are tech tools, apps, or subscriptions that are purchased by departments other than IT. Think: Marketing buys sweepstakes software for a social media campaign and expenses it from their budget, meaning the tech team doesn’t know about it.
Categorize the Costs
Once you have a rough idea of the overall budget and what to include, it’s time to get more granular. We recommend categorizing your company’s line items into these three buckets:
- Run the business (~70%): These are the core services and items that are necessary to keep your company’s lights on.
- Grow the business (~20%): This accounts for hiring new employees, opening a new location, IT salary increases, and expanding into a new customer sector.
- Transform the business (~10%): This is earmarked for testing out new tech and innovating.
Pro Tip: Revisit these categories annually to ensure IT is supporting the business’s strategy.
Three Approaches to Budget Management
If you’re used to handing the budget over to IT and forgetting about it until next year, think again. Since technology is always changing, you need to build flexibility into how it’s managed.
Centralized, Decentralized, and Hybrid models are the three most common ways companies manage their budgets.
- Centralized gives the IT department complete control. It’s good for security and tech standardization, but it can slow down innovation because everything has to go through the IT department.
- Decentralized allocates a budget for every department to use for their tech. Department-level innovation moves faster in this model, but it comes with more security risks and less company-wide consistency across systems and data. (This is a popular and wise choice for nonprofits that need to keep costs segmented by program.)
- Hybrid is a mix of Centralized and Decentralized. It gives the IT team control over, say, 80% of the budget to use toward the company’s core, shared costs (ERP, cybersecurity, infrastructure). The remaining 20% is reserved for departments to manage and spend on innovating, trying new tools, and experimenting.
Our tech experts most often recommend some type of Hybrid approach, but it is dependent on your company’s setup and goals.
IT Budget Best Practices: Factor in Inflation, Contract Renewals, and Staffing
IT costs never stay flat. As you think about the budget, don’t forget to plan for inflation, contract renewals, and salary increases.
Here’s how you can stay ahead and minimize surprises:
- Track all contracts in a centralized register with renewal dates and escalation clauses.
- Negotiate with vendors early about renewal price hikes.
- Factor inflation (CPI-level increases) into the budget.
- Plan for rising salaries. Even though large companies are downsizing in the headlines, IT roles remain competitive due to talent shortages.
Pro tip: Outsourcing some (or all) of your IT can help reduce the effects of salary inflation and help fill skill gaps.
Capitalize on Tech Opportunities
It’s hard to tie IT spend directly to ROI, but strategic tech investment can drive business and revenue growth. CFOs who treat the IT budget this way can help strengthen their company’s resilience and position it for future innovation.
Looking for real IT budget examples?
Download our free budget workbook with three different IT budgeting approaches to help you start smarter, more productive conversations with your head of IT.
Download the workbookTo help get productive budget conversations started with your head of IT, download our free Three IT Budget Examples.
Once you and your CIO review the example budgets, if you’re still feeling unsure about how to move forward with your company’s IT budget, our tech experts are just a phone call away. SC&H’s expert IT leaders can help you determine the best way to allocate your budget to support your business’s goals!
