Balancing IT Between Capital and Operations Budget

Information technology and business are now inseparable. Business can’t happen in the world anymore without the Internet and the devices connected to it. Yet, budget-wise, many organizations still make the mistake of considering their IT projects and software development initiatives solely as a capital expense. This decision not only limits the agility of IT, but the business’ growth potential as well.

Back when a project meant a huge spend on hardware and infrastructure, it made more sense to put those costs in the capital budget. But today, the necessity for IT maintenance and quality assurance means some of these expenses have become day to day. How to balance their IT spending between the capital and operations budgets can be a major factor in a business’ year-end strategy.

IT’s Role in Budget

It’s easy to view the concept of IT as a monolithic mass, but in reality, has several main components. According to IT research firm Gartner, these components can be summarized into three primary parts: Run, Grow, and Transform.

  • Run: These are the essential services without which you couldn’t do business, like internet servers, essential software, and other hardware. Of all the IT expenses, these are the ones which should most clearly be considered operational, and at many companies likely already are.
  • Grow: These projects will help grow or expand the business’ current capabilities. Examples would include software or security upgrades, or a new website. Growth IT costs are quite flexible, and may be quick one-time expenditures or long-term engagements.
  • Transform: This group represents major hardware upgrades or a conversion to a totally new operating system or software.

Remember that allocating a cost to the capital budget requires pinpoint accuracy when it comes to projections and predictions. Among the benefits of grouping IT in with operational costs, a significant pro is that funding unexpected break-fix needs becomes much easier. There’s no need to divert funds or borrow from larger projects, as it can simply be factored into the day-to-day spending. This will bode especially well for those essential Run functions. As efficiency improves, the IT department will even be able to scale their budget requests as needed.

While it’s been historically appropriate to throw all the IT costs into the capital budget, the recent growth in speed of tech developments means many of these costs make more sense being allocated from the operations side. Leaders will have easier access to funding, and free up cash for other investments on the capital side.