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IT budget is the amount of money spent on an organization's information technology systems and services, including compensation for IT professionals and expenses related to the construction and maintenance of enterprise-wide systems and services.
The IT budget is typically overseen by the chief information officer (CIO), the IT organization's top executive. However, as IT has become central to business results, the scope and allocation of an IT budget has become more complex, because not all IT spending falls within the IT department.
In fact, current studies have found that 35% to 50% of an organization's overall expenditure on technology is controlled by business divisions others than IT. Case in point: In PwC’s 6th Annual Digital IQ Survey report, released in March 2014, on average, 47% of IT spending reported by survey respondents was outside of the CIO’s budget.
IT budget components
If that's indeed the case, what does the IT budget include -- and what is likely outside its confines?
To start, compensation costs for IT professionals fall within the IT budget, including costs for external consultants used by the IT department. Expenses related to building and maintaining enterprise-wide and so-called back-office systems are also included in an IT budget. These encompass, for example, the enterprise resource planning (ERP) application as well as accounting, finance and HR applications.
The IT budget also encompasses hardware expenditures; bills for laptops, organization-issued mobile devices, servers, routers and other networking equipment, for example, are typically paid out of the IT department.
Items that tend to fall outside the IT budget include applications deployed for and used by specific business units. Marketing applications, such as those that enable social media campaigns and content management systems, are cases in point; those costs tend to fall under the marketing spend rather than the IT budget.
IT budget approval process
Although the CIO has responsibility for the IT budget, the CIO is not the only person to devise and approve of the entire package. Indeed, even for the technology spend that falls within the IT department and thus with centralized IT budgets, CIOs often devise and manage that budget in conjunction with executive IT steering committees; other executives and directors; and other information chief executives, including the chief digital officer, the chief data officer and the chief analytics officer.
While the IT budget rarely includes all of an organization's technology spending, best practices dictates that the IT department still gather a holistic view of technology costs regardless of where they reside. This allows IT leaders as well as the rest of the C-suite to ensure that there are no redundancies between the centralized IT budget and other business unit budgets, thereby keeping overall IT spending lean and in check.