AFM241 Study Guide - Final Guide: International Financial Reporting Standards, Gartner, Antivirus Software
30 May 2018
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9.3: IT Budget
o IT consulting firms generate reports for their clients that contain some definition of IT
budget / spending.
o Gartner ( a major IT research and consulting firms) has been running a report on IT
budgets for a while through surveys and developed the following ideas:
o IT budget/spending can come from anywhere in the enterprise incurs IT costs and it is
not limited to the IT organization. It is calculated on an annualized ‘cash out’ basis, and
therefore, contains capital spending and operational expenses BUT not depreciation or
amortization
o IW500 Report states that the budget should include capital and operating expenses for
infrastructure such as telecom, networking, and hardware; application (maintenance and
development packaged); internet-based costs; salaries and recruitment; IT
services/outsourcing; and training.
IT Budgets: Elements
1. Hardware: current equipment costs plus any hardware purchases including maintenance
fees such as computers, laptops, routers, cabling, printers, & scanners
2. Software: current software costs plus any planned purchases (including support and
maintenance fees for infrastructure software and apps) which includes antivirus
3. IT Personnel: development, production/operations, administrative, IT management, and
HR who perform IT tasks under contract
4. Outsourcing: costs associated with external IT services such as email, desktops as a
service, consulting, system integration, and data/voice transmission
5. Occupancy costs: costs of facilities being used by the IT organization – office space,
furniture, electricity, maintenance, property taxes, security, and office supplies.
IT Budget: Operational and Strategic
- IT managers tend to approach IT budgets from a functional standpoint.
- At the functional level, IT managers make the distinction between operational cost and
strategic spending.
- Over the years, consulting firms have generated variations of these two terms (e.g.
Gartner suggest that from a functional standpoint, IT spending is used to run, grow or
transform a firm).
- Terms, such as operation, maintenance or support costs are used interchangeably.
- An operation IT budget refers to IT spending that is needed to keep the
organization operating (e.g. mission-critical server replacements).
- Similarly, strategic IT budgets or strategic IT investments relate to IT spending
used to grow, transform, advance the ball or change the rules.
- Strategic IT spending refers to new IT initiatives that aim to improve the firm’s competitive
position, thus their alignment to the organization’s business and corporate strategy is a
top priority.
- Strategic IT initiatives are likely to be undertaken when the firm’s financial position
is strong and postponed when cash is less available. As a result, timing correlates
with cash flows.
- Capital budgets represent expenditures that re-occur infrequently and are depreciated
over a period of years to match their life cycle as useful assets.
- Consulting firms may further divide strategic IT spending into grow or advance the
ball versus transform or change the rules. Grow or advance the ball IT budget
related items typically include initiatives, such as the implementation of new
software that makes operations more efficient. Transform or change the rules
Document Summary
It budget/spending can come from anywhere in the enterprise incurs it costs and it is not limited to the it organization. It is calculated on an annualized cash out" basis, and therefore, contains capital spending and operational expenses but not depreciation or amortization. Iw500 report states that the budget should include capital and operating expenses for infrastructure such as telecom, networking, and hardware; application (maintenance and development packaged); internet-based costs; salaries and recruitment; it services/outsourcing; and training. It personnel: development, production/operations, administrative, it management, and. It managers tend to approach it budgets from a functional standpoint. At the functional level, it managers make the distinction between operational cost and strategic spending. Over the years, consulting firms have generated variations of these two terms (e. g. gartner suggest that from a functional standpoint, it spending is used to run, grow or transform a firm). Terms, such as operation, maintenance or support costs are used interchangeably.
