How much should an organization spend on IT?

Every company has a different need for technology, and some are better using technology to achieve business objectices than others.  As a result, IT, as a percentage varies significantly from company to company, and vertical to vertical.

That being said, there are certain baselines, against which many companies measure their own spending.  For example, it's a common baseline to say that an IT budget is commonly between 3% - 6% of revenue.  If your firm is at 1%, you are clearly well below the standard, and anything over 7% and... well you get the picture.

The next, more important question is:  "Now that I know where I stand, compared to others, what do I do?  Should I cut that budget to help my top line, or increase the budget to help my bottom line?"

The answer is:  YES!  There are technologies that cost a signicant amount of money, yet pay for themselves in a very short amount of time.  These expenses, when overseen and implemented by a trusted Strategic Resource (highly paid CIO, or trusted IT Advisor like CBI), can and do have a dramatic impact on operational costs and bottom line revenue.

The answer also depends on numerous other variables.  For example, does the culture of your firm view IT as a Cost Center?  If so, then the absolute focus for IT will be simply to drive every cost down, no matter what.  Typically these firms find ways to cut corners and cut costs, and IT is more likely to be reactive, have a higher total cost of ownership (TCO), and not push the organization in new directions.  Often times, the intended result (cut costs) is not the actual result (increased costs due to poor planning).  That may be ok for some.

It's not ok for others.  Many firms pride themselves in viewing IT as a tool to enable growth and support business objectives.  An example is the Credit Union M/A movement over the last 10 years.  The mergers and acquisitions were not just 'for fun'.  They often times revolved around the fact that more technology was needed to compete and win business.  That technology came at a price, in which smaller ones often could not afford.  If they joined forces with a larger CU, they immediately open up a long list of new offerings (based on technology) to their existing members.

In summary, 3%-6% is a fair baseline to start with, but the industry and the cultural perception of IT (Cost Center vs. Tool for Growth) will impact where your organization stands. 

Good luck out there!

Bjorn Olson

Sr. Account Manager

Creative Breakthrough's, Inc.

http://www.cbihome.com