Annual budgeting for IT portfolio management is often mismanaged for one reason – lack of knowledge. In many organizations, IT departments do not understand budgeting while the finance and budgeting team does not understand the requirements of the IT department.

This problem can be remedied by changing the budgeting approach and adopting a meaningful management process. This technique involves a lot more than adding numbers and working with spreadsheets and includes department heads and leaders working together to determine the importance and role of IT in an organization.

IT budgeting akin to finance planning

Considering IT as a form of investment within your organization, IT budgeting is a lot similar to personal finance planning. When you understand the short term and long term goals of the IT department in your company, you can allot the right amount of finances in the budget. Multiple versions of the budget must be drafted and analyzed through technological and financial standpoints. Each IT initiative should be considered an investment and the timing, phasing, and execution of each application must be considered carefully.

Aligning IT budgeting with strategy

After the numerous options and investments are considered, you must oversee whether or not the plan will help your organization fulfill its goals. Apart from the details, it is also important to understand the big picture. Check whether the IT budgeting allotment aligns with the strategic objectives of your company and whether any of the strategies make your IT initiatives or applications obsolete. After you have evaluated the strategies, you can move to validating the IT role in your organization. Oftentimes, budgeting is treated as a single entity but it should really be treated as three different components that include running, growing, and transforming.

Assessment of the IT budgeting impact

You should also evaluate IT budgeting to determine whether it makes financial sense for your organization. IT budgets tend to have large capital funds allotted for components and operations, and should ideally be incorporated into the complete company budget. Apart from considering factors like key performance indicators, impact on the cash flow, as well as financial statements, smaller companies should also consider initiatives with large expenditures for planning, purchase, and execution.

An easy way to manage expenses is to reserve a fixed amount for IT purposes each year. This way, your organization can store a surplus of budget and use the funds only when necessary. It can also help you reduce the risk of technological failures and make quick replacements before these technical snags have a negative impact on your company.