Since IT is integrated into nearly every aspect of financial services, institutions must consider technology in their budget planning. With competing priorities and an ever-changing technology landscape, it can be difficult for financial institutions to decide how to plan and spend their technology-related budget.
Forming a technology budget is a crucial step for financial institutions to truly plan out their expenditures and determine priorities to support the overall IT strategy. This blog explores the importance of developing and following an IT budget, as well as how IT governance helps ensure your technology investments align with your strategy.
Want additional insight into enhancing your IT and information security (IS) strategies? Download our Guide to IT Governance white paper.
What is IT Budgeting?
An IT budget is a tool used to create and monitor a set of assumptions for current conditions and predictions for tomorrow’s conditions. For institutions, budgeting not only helps finance key areas but also provides a roadmap for predicted future conditions, including specific technologies that will help accomplish business goals.
Essentially, a budget is a map of where you think your institution is headed. Once you start on the journey, the map—or budget—shows your starting point and future direction. Your direction is guided by the items you include within your IT budget. Ultimately, the responsibility for determining what’s relevant and important for your institution’s IT budget lies with your senior leadership.
Why IT Budgeting is Important for Financial Institutions
Many banks and credit unions approach IT and cybersecurity issues as technical issues, increasing their spending annually on IS programs and technology. Institutions taking this approach often believe investing in more technology will enhance security, compliance and growth efforts. However, budgetary investments seldom generate these outcomes alone.
As an example of this mindset, many institutions have increased their cybersecurity-related budget in response to growing cyber threats and attack vectors. But spending money on cybersecurity initiatives does not always equate with heightened defense levels, especially if no holistic cybersecurity strategy details how specific cybersecurity measures will work together to enhance protection. The results of cybersecurity spending should align with your specific objectives.
The reality is this: IT and cybersecurity are business problems—not just technical issues—and require alignment with an institution’s goals for optimal effectiveness. When determining your investments within your IT budget, your institution should establish which technologies best support your strategic business goals.
Why Leverage IT Governance to Guide Your Strategy?
According to Gartner, IT governance is “the processes that ensure the effective and efficient use of IT in enabling an organization to achieve its goals.” Viewing IT and cybersecurity through the lens of IT governance allows your institution to optimize its strategies and invest in technology that will help achieve your unique goals.
In fact, an effective IT governance framework maximizes technology investment for your institution and involves key stakeholders, such as the board of directors, senior leadership and internal staff. The right advisory partner for IT governance will understand how technology, cybersecurity and financial services intersect, guiding your institution to achieve its specific business objectives.
5 Best Practices for IT Budgeting
Creating an IT strategic plan is critical to guide your institution in the short and long term. An IT budget is a vital component of the strategic planning process, as it shows you the breakdown of the dollars that will support your goals. Below are several best practices to consider during the IT budget development process.
- Create a formal technology budget annually. Your technology budget should reflect your IT strategic plan’s priorities and should be created and reviewed annually to ensure the allocations align with your institution’s current strategies. In fact, your technology spend should directly support your strategies. When budgeting, ask yourself: If you cannot map your expenditures to business objectives, why spend the money?
- Develop your budget to correspond to your fiscal year. Your technology budget should be created, reviewed and approved before the start of your fiscal year. Since most IT companies follow a calendar year, consider creating your budget in September or October to leave plenty of time for approvals. This approach also allows ample time to determine your project list for a given year, which should be derived from the approved budget.
- Communicate the cost of items allocated in the technology budget to IT management. IT management must have insight into the costs associated with the items in the technology budget. This includes, but is not limited to, support and maintenance, services, licensing and new purchases. Don’t make the common mistake of only looking at new expenditures or renewals—always look at the total or ongoing spending amounts. The IT budget contains more than what you plan to purchase or renew, representing the entire spend for the current fiscal year and even projections several years in the future.
- Revisit the budget instead of treating it as a one-time event. Your budget must align and support your strategy. While you should invest the appropriate time and resources to develop your budget, it is a working document and should not be treated as a one-time exercise or event. Consider your budget as a tool to help you navigate the process and manage change. If it is treated as an annual event and never revisited, you risk wandering off course and facing an unpleasant surprise.
- Consider partnering with a third-party provider. Outsourcing certain aspects of IT can be an effective strategy to minimize costs while maximizing resources. A third-party provider helps optimize your IT infrastructure, ensuring you can support pivots in strategy and scale services as needed. As cybersecurity and regulatory requirements evolve, a trusted partner familiar with the financial industry will help keep your institution compliant with the latest regulations while mitigating risk. Remember to perform due diligence on any third-party provider.
Determining Your Institution’s IT Budget
An effective IT budget is another tool for your institution to ensure you achieve your strategic goals. Aligning business objectives with IT strategy is a foundational step in your institution’s success, as IT can be a positive influence and facilitator in achieving your goals.
Remember that budgeting and IT governance are connected processes, not a one-time event. If the budgeting and governance process becomes a tiresome or dreaded event, it will likely be ineffective. Once all the components have been established and implemented, the process becomes evolutionary. It is a continuation that considers where you came from, where you are and where your institution intends to go.
Learn more about how IT governance helps guide your institution’s IT strategy and enables you to maximize your technology investment by reading our white paper.
GET YOUR COPY