Are you spending appropriately on business IT infrastructure and services? The answer may not be as straightforward as you think. Many factors will affect how much to spend on technology for your business. You must consider what you are trying to accomplish, what you can afford, and what is available. Most studies indicate that making wise IT spending decisions yields a substantial return on investment in productivity, quality, and end-customer experience that will more than pay for the money spent. Like a carpenter or a mechanic, having the right tools makes the job go more quickly and smoothly.
So why aren’t more businesses investing in IT? One reason may be that they don’t understand the benefits. Another reason may be that they don’t think they can manage costs. But the truth is, there are many affordable options available, and the benefits of investing in IT are too great to ignore. One thing is certain: your business cannot survive without adequate technology infrastructure. You need to ensure that you are spending enough to keep your systems running smoothly, handle variable workloads and unexpected development, and keep up with your competition. But you also don’t want to overspend and put yourself in financial trouble. Many businesses struggle to find the right balance between investing in new technology and staying within budget.
There are a lot of options out there when it comes to technology. You can buy or lease equipment, outsource your IT services, or hire an in-house IT staff. Each option has its own set of pros and cons that you need to weigh before deciding. This article will discuss some tips for keeping your IT expenses at an appropriate level. This article is aimed primarily at small business IT managers but may also be of interest to IT managers responsible for larger organizations.
Define your IT baseline
It’s important to know what you’re trying to achieve with your IT spending, and it’s also critical that you understand the minimal or “baseline” costs required to meet your existing goals. If you increase your IT spending by some amount, say $10,000, it’s essential to know what this new budget will be allocated towards and the return on your investment. So, how do you determine what your baseline is? Add up all supplies and services – labor, materials, licenses, services, etc. – that are needed to support your current IT footprint for the period to be measured (monthly, quarterly, or annually). For most small businesses, the baseline has likely been set somewhat arbitrarily at a comfortable level for the organization rather than accounting for the realities of the organization’s needs, creating gaps that typically manifest as shortfalls in supply or performance. If either that level of spending or the results obtained are not satisfactory, you’ll probably need to make some changes in short order. However, if the current state of affairs is at least adequate, it’s essential to establish the baseline spending required to maintain that status. Suppose your company is expanding and you need more equipment, software, and related services. In that case, every additional seat contributes to your baseline, as do the resources required to implement and support these new systems.
Once you’ve defined your baseline, calculate your actual IT spending for the same period. To calculate your actual spending, you need to identify every single line item in your IT budget and the dollars spent on that item. The difference between your actual IT spending and your baseline provides insight into the impacts on IT spending as you grow, add new systems, and replace existing systems. For instance, you can derive a multiplier by dividing your actual IT spending for any given period by your calculated baseline for that same period. The result can be used to calculate the impact on your baseline when additional IT budget allocations are made for growth or technology upgrades. As you can see, baselines are an essential tool in managing IT spending. In fact, they’re a critical part of your overall strategic planning process.
Evaluate your IT needs
To determine your company’s IT needs, you need to take a complete inventory of what you currently have and sort between what’s mission-critical and what is merely nice or convenient. You may find that you don’t need certain things and can do without them, freeing up money that can be saved or applied to more pressing requirements. For example, if you have a limited IT budget, you may find that you can extend a hardware refresh lifecycle by one or two additional years, thereby delaying investment in new hardware or systems. You may be able to suffice by using the software that is already bundled with your desktops or included with online productivity suites such as MS Office 365 or Google Workspace rather than purchasing additional software licenses. “As-a-service” offerings such as virtual desktops, cloud storage, and cybersecurity bundles that are available as monthly subscriptions can lower your initial capital expenditures compared to buying and owning these items outright, allowing your organization to retain more cash in the short term.
Many small businesses do the calculus between in-house and outsourced IT and discover it is ultimately more flexible and cost-effective to contract with a managed services provider (MSP) for all of their IT functions rather than hiring in-house IT talent. There is no one correct answer, so it’s important to do the work and develop a targeted strategy for your organization.
Check your priorities
In the world of small business, needs often outstrip means, which is especially true in IT. For that reason, it’s all the more important to prioritize one’s IT spending to get the most significant return on your investment. This is even more crucial in tough economic times when every dollar needs to be stretched as far as possible. However, a few general rules of thumb can help companies make these decisions.
The first priority should always be security. This does not mean that the largest portion of your IT budget is spent on security, but it does mean that security needs must be fully addressed no matter what your budget. The good news is that security need not be expensive: ensuring that all systems are up-to-date with the latest security patches, having proper firewalls and end-point protection, frequent backups, and other security measures can be implemented at a reasonable cost.
Next comes functionality – ensuring that the tools and systems people need to do their jobs are working correctly and that the staff is adequately trained to use them effectively. This is especially important for companies that are expanding rapidly. As a company grows, its employees come from different backgrounds with different experience levels using technology. It can be difficult for small businesses to juggle competing priorities, but these essentials are an afterthought all too often.
After that comes modernization – ensuring that the company’s technology infrastructure is up-to-date and able to support current and future business needs. Business technology is an evolving landscape. For a company to remain competitive in the modern market and serve its customers, it must keep pace with emerging business technology trends. This may include using current software, hardware, and communications technologies. In extreme cases, a complete overhaul of the company’s entire IT system may be in order if the technology is very old. There can be some pushback against adopting newer technologies and spending on modernization in smaller companies, and while this is understandable, it is foolhardy in the long run. Imagine if your company had dismissed email as an unimportant fad back in the 1990s and failed to adopt it as the standard method of business correspondence. Where would your business be now?
Only after a company has adequately addressed security, functionality, and modernization should it consider spending money on new initiatives or projects.
Can you save money by using an outside IT provider or an alternative technology? When it comes to IT services and IT management functions, businesses can hire talent in-house, outsource to a service provider, or do a hybrid of the two. While both outsourcing and in-house options have pros and cons, there are some compelling reasons to consider outsourcing at least some of your IT functions.
Using an outside IT services provider could save your business money. Many MSPs offer flat-rate pricing models that are often more cost-effective than the hourly rates charged by most in-house staff. You can usually get started with these providers for less money than it would cost to hire and train new in-house personnel. Additionally, an MSP provider can provide your business with specialized skill sets to implement the latest security solutions. This can be especially important if you have sensitive data on your company’s network or need to comply with specific laws and regulations. Finally, a managed IT service provider can provide your business with the assistance it needs to implement new technologies. In this way, your company can keep pace with evolving standards and stay competitive without an inordinate effort.
Technology is constantly evolving. It can be hard to keep up with all of the changes, but it’s important to stay informed to make smart decisions about your business IT spending. This does not mean that you need to become an IT specialist or a technology expert. A broad and general understanding of business technology and cybersecurity trends is sufficient. Working in conjunction with an MSP or IT director, you should be able to leverage this understanding and make wise IT decisions for your company.
So how do you stay informed? Here are a few suggestions – you certainly don’t need to do all of these, so pick one or two that are convenient for you:
- Subscribe to tech magazines or newsletters to stay up-to-date on the latest news in the industry.
- Follow tech bloggers and websites that focus on technology reviews.
- Attend technology trade shows and conventions to see new products and services firsthand.
- Use cost estimating websites to gauge the cost-vs-return of systems and services.
- Ask business associates and colleagues about their experience with various technologies and services.
In conclusion, by evaluating your business IT needs and keeping your IT spending appropriately, you can ensure that you are making the most of your technology investments. Recent data indicates that small businesses are wasting thousands of dollars annually on technology that is not yielding a return on their IT spending. With the right planning and management, you can avoid overspending on unnecessary hardware and software and ensure that your systems can meet the needs of your business now and into the future.