| This topic shows us the importance of benchmarking IT spendings and also helps us in developing recommendations for general spending levels to achieve the company's strategic objectives.It manager can use different methods to benchmark IT spendings |
| Estimating and benchmarking IT spending provide focus and validation of an organization’s IT spending and investment strategy. It also educates IT management and the IT steering committee on the spending levels, giving them the frame of reference on how much they must be spending when compared to other industries or organization. Additionally,
it provides deeper insight into company – specific IT spending and puts into clear focus the actual total money spent on IT. |
| IT spending |
| • Capital expenditures for IT projects, hard wares, softwares and services. |
| • IT services and outsourcing: Expenses for external IT services (IT consulting, research services, hosting, etc.). |
| • Salaries and benefits |
| • Applications: Cost of implementing and enhancing application system that support existing business system. |
| • Maintenance and administration |
| Benchmarking |
| Measurement against groups of companies or other methodologies, as well as incorporating idiosyncratic company information, will help arrive at more accurate answer.
While there is no consensus on a single correct way to estimate the appropriate level of IT spending.
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| Different technique of benchmarking |
| • Comparison of IT spending as a percent of revenue against peer group of companies (industry or other comparative)
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For a particular industry there does not exist a required ratio for IT spending to remain competitive. This type of high-level estimate is
useful as a starting point for determining appropriate IT spending for a company.
Senior management should not automatically increase or decrease IT budgets based on these calculations, but instead use them as general benchmark for understanding why the right spending should be more or less in their company.
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| • Comparison of IT budget by company size (revenues)
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It gets more difficult to compare industry averages as a measure of correct IT spending, because of the data are driven by public companies.
Public companies are generally large in terms of employee count and revenue, As It budgets and staff increase with company size, the company begins to enjoy economics of scale across a wide variety of IT spending categories.
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| • Comparison of IT spending per employee against peer group of companies (industry or other comparative). |
| IT costs are driven by the number of knowledge workers, professionals, or individuals that use computing resources in your company |
| • Formula developed by leading IT investment researcher Paul Strassman based on key drivers of IT spending. |
| IT Budget = K + (A x SG & A) + (B x Profit after tax) + (C x Desktops) + (D x Professionals) – (E x Officials) |
| K= Fixed IT budget – that which is nonvariable. |
| A, B,C, D, E=Weighting of each category appropriate to the peer group |
| SG & A = Company’s sales, general, and administrative expenses |