The (Obvious?) Link between Your 5-Year IT Budget Forecast and Your Equipment Refresh Cycle

TG_Leadership_TinaMcConnell_1000x1000_v2By Tina J. McConnell
Director of Professional Services
Trivalent Group, Inc.

How many of you reading this like to create a budget? None? Hmmm…Shocking. Do you schedule this activity once a year and look at that date as “I’d rather be doing anything else”?  What if you created one, 5-year forecast (yes, it will take longer than a 1-year forecast but not 5x longer) so the chore of updating it on an annual basis is drastically reduced? Intrigued? Read on…

First, let’s list a few common technology expenditures, listed here “from the outside in”:

  1. Internet
  2. Firewalls
  3. Switches
  4. Servers
  5. UPS devices
  6. Computers
  7. Wireless infrastructure
  8. Printers
  9. Licensing
  10. Maintenance
  11. Website/hosting/Domain Registration
  12. Applications (Software)

Plot this list on a spreadsheet (Column A, for example), with the next 5 columns representing the current year plus 4-5 years.

Gather your supporting documents: past budgets, paid invoices, equipment inventory, etc.

Now, let’s add some detail.

Under Internet, list the name of your Internet Service Provider, and, in the budget year column, list the annual expenditure (monthly bill x 12). The most obvious next step is to populate this same amount in the columns representing the next 4-5 years and adjusting each year if your bill is to increase.

However, if you are planning to add more bandwidth or facing a business change that will necessitate increased bandwidth, you will want to put the planned amount in the year in which the change will take place and carry that number forward. Is your business dependent on the Internet? Do you have a redundant provider for failover? Add another row and that number.

Don’t have a redundant service but think you should? Get a quote, add a row for the second provider and plug in this number. Ultimately, you will see how adding a second ISP impacts your bottom line/overall budget, and you can compare that to the cost of an outage. If your business is dependent on the Internet, and your Internet goes out, what does that cost you? And isn’t that more expensive than a second (redundant) ISP? Something to consider…

List the make/model/serial number of your firewall. Plan to replace it every x years? You’ll need to know when you bought it so you can put the cost of a new one in the appropriate year column. Does it have an annual maintenance or update fee? Put this number in the subsequent columns.

List the make/model/serial number for each switch. Follow the same process as noted above for each firewall (put replacement cost in the appropriate year). How many ports are free in your switch? Forecast the cost of another switch when you anticipate reaching capacity (business changes, staffing additions, etc.). Forecast the cost of an additional switch if you plan to open another office/building/location.

List the names of your servers. When did you buy your servers? What operating systems are your servers running? You will need to plot replacement (at least every 5 years) and budget for OS upgrades in advance of the manufacturer’s announced “end of support” date for updating the current OS and/or as your applications (software) require it.

You should consider not only the cost of the server/OS/licensing, etc., but also the cost of the labor to perform the upgrade if you do not have that labor in-house (Consider putting that labor on a separate line item). Considering the purchase of a new application? Does it require its own server? Or have you virtualized? Do you want to? All of these items should be included on your forecast.

Add your UPS devices to your budget. Budget for replacement as recommended by the manufacturer. Again, if there are business changes in your future, forecast additional UPS devices to run additional equipment or larger-capacity UPS devices to accommodate for these additions or to create a more efficient environment or longer shutdown window in the event of a power failure. Work with your building maintenance team on appropriate planning and budgeting if there is a generator in the mix.

Computers often come with a 1-year warranty, but sometimes you can purchase them with a 3-year warranty.  In any event, your refresh cycle should be no more than 5 years. When first starting out, it may be that all of your computers were purchased at the same time and replacing them all at once might not be realistic. Look at your options. Can you budget for a few in 3 years—perhaps your power users? Some in 4? Some in 5? This will allow you to create a repeatable and sustainable refresh cycle for the next 5 years.

How much does a new computer cost? That will depend on whether you are replacing desktops, laptops, mobile devices, etc. Check an inventory of your current equipment for warranty status, model year, and operating system—perhaps you’ll find some surprises. Keep in mind that Microsoft has predicted a new OS release every 18 months and that it is not always best, financially speaking, to upgrade an OS on an existing computer; sometimes, it is more financially sound to replace it depending on the sophistication of the device when it was purchased (RAM, processor, etc.).

You can plot a single line item dollar amount on your budget according to your anticipated refresh cycle, but you’ll want to provide yourself some detail on a supporting tab (who, what, when, how much, etc.). Don’t forget to budget for new computers for your growing staff! Or you could add a line for desktops, laptops, and mobile devices, budgeting dollars on each line for each year in your forecast.

By now, you’ve become a pro at adding lines (rows) under each header we started with (category of technology expenditure) and calculating your budget/forecast across the page. Complete your work.

Under the last item of the budget, add rows for totals for each year. Use the Excel AutoSum feature to total your forecasted expenditures by year. You will see at a glance what your budget is every year for the next 5 years, and you can easily budget the impact of a business decision by adding items to or subtracting them from this spreadsheet.

I hope you can see how your finished product has now prepared you to make real-time adjustments to your budget and, therefore, drastically reducing the amount of time you have to spend coming up with an answer to the question: “What’s your technology budget for next year?”