Three Factors of a Proper Technology Budget

Everyone asks me… “How do I budget for technology?”  There are 3 factors in determining a proper technology budget:

1.    Asset Replacement

Most organizations know they eventually need to upgrade their computers but too many businesses wait until a critical machine crashes and then rush to replace it (and hopefully recover lost data).  As a rule of thumb we typically recommend all computer assets (desktops, laptops, workstations, and servers) be replaced every 4-5 years (assuming you are purchasing business-class products).

Bottom line: Look at your Year-to-Year growth from 2011-2012.  Then, look at which assets are turning 4-5 years old next year and make sure you budget for those items.

2.    Human Capital Growth

One aspect of technology budgeting that tends to get overlooked is the increase in human capital.  Are you anticipating an increase in your human capital?  Will you be investing in a new product line or new business model?  If you don’t account for human capital growth within your technology budget you may not be able to adequately outfit your new staff with the technology they need to do their jobs well.

Bottom line: Look at all potential human capital growth expected and make sure to budget for the technology those assets will require.

3.    Strategic Alignments

As Technology Advocates we ensure a company’s technology aligns with their business processes.  We discuss their particular business processes in detail and help them discover technology solutions that can save them money and labor hours.  Once you assess your technology needs with the business processes they are supporting you can direct your technology investments into the assets that are most critical.  Ask yourself this question:  How many things are your employees doing manually that could be automated?  If you invested $20,000 into technology that reinvested 40 man-hours back into every work week it wouldn’t take much to realize the benefit that technology would add to your EBITA.

Bottom line: Look at your current business processes and the technology that can automate/optimize those processes and make sure to budget for that technology.

Finally, once you determine costs for those three factors, add them together and double that number.  Many businesses factor hardware and software needs into their budget but fail to take into account the implementation and maintenance costs of those technologies.  If you plan on investing in $50,000 in technology in 2013, plan to also invest $50,000 in implementation and maintenance costs.

DO NOT MISS THIS!

If you are not familiar with the Section 179 Tax Deduction, you should be. This tax deduction allows you to purchase a new business vehicle, for example, and depreciate it all in one year. Did you know that same deduction can also be used for computer hardware and software purchases?  In fact, with a non-tax capital lease you can acquire and write-off up to $139,000 worth of hardware and software this year without actually spending $139,000 this year!  This year the limit on qualified purchases has increased to $560,000.  There is a catch: The project to implement that hardware and software must be completed and completely paid for before the end of the year (of course, financing counts).

Check out the Section 179 website for more information.