Keeping Up with the Joneses: The Risks of Association IT Budget Comparisons
- Mike Guerrieri
- May 24, 2017
How Does Our IT Budget Compare to Other Associations?
Clients frequently ask us: Are we spending too much or too little on IT? Well, it depends. On a lot of things.
The idea of benchmarking is attractive because it’s easier to make a case for increasing or decreasing technology budgets simply by finding out how other associations invest in IT. It’s much harder (but better) to make a business case for all of your IT expenditures and let them stand on their own merits. Unless you dig into how the data was collected in benchmarking surveys, the comparison is likely to be flawed. Consider these issues.
Lines of business – We’ve rarely seen a survey include questions about the lines of business supported by IT. An association that handles membership renewals, has one publication and website, and primarily does industry lobbying is going to look very different from an association that does the same plus peer-reviewed scholarly journals, several international meetings, certification, and accreditation.
Locations – How many offices do the other associations support? Each location can impact technology spend for certain categories, e.g., network security and Internet service. Also, some locations have higher operating expenses, for example, Washington, DC, vs. Indianapolis, IN.
Staff size – Many surveys do address staff size. Some technology expenses are based on number of employees, e.g., Office 365 subscriptions and other pay-per-seat software licenses. However, other expenses like security monitoring are fixed. Large staff sizes may also result in lower spend per employee due to quantity-based pricing.
IT maturity – An organization that is low on the IT maturity scale (restrictive) and is determined to address shortcomings will invest more in technology to close the gap. A very mature organization (innovative) may also have a higher IT spend because of how important IT is to the business. Does the survey make that distinction?
Validity of Data
Sampling error – Is the number of respondents to the survey sufficient to be statistically significant? While in aggregate, the size might be right, it might not be sufficient when it comes to sub-categories, such as staff size.
Ambiguous questions – Are the survey questions clear? For example:
- Do they distinguish between capital expenditures (CapEx) and operating expenditures (OpEx)?
- Is depreciation included?
- Are IT staff salaries and benefits included?
- If salaries are included, are they normalized by region? (See ‘Locations’ above.)
- Are costs in business line budgets included, e.g., digital marketing?
Inconsistent tracking of expenses outside of IT – Because it’s difficult or impossible for some accounting systems to include expenditures that occur outside of IT in the overall technology spend, that data may be underreported by survey participants. IT spend used to be primarily a CapEx. The move to cloud services—Software as a Service, hosted applications, Platforms as a Service, Infrastructure as a Service—requires the transfer of funds from CapEx to OpEx and from IT to the business unit since these recurring expenses are not depreciable.
Is association technology budget comparison pointless?
How do you know if you’re being fiscally prudent with your IT spend, yet not starving your organization? Targeted comparisons can have value. However, it’s better to look at specific expense categories that are more easily compared apples-to-apples, e.g., Internet circuits, web hosting, and employee training.
How to determine if your technology budget is right for your organization
- Perform an analysis of several of your largest spend categories—for example, software and hardware maintenance—to determine if you can save any money. You may want to engage a consultant to assist, but contacting a few similar organizations could accomplish the same thing. Staff may also have ideas about places to save.
- Get a qualified consultant to provide an objective assessment of your technology function to determine if it’s performing optimally.
If your spend is within reason and your IT team is functioning well, the next question is…
- Are you not keeping up with the technology demands on the business? For example, do you have a long backlog of technology projects that represent lost opportunities for service improvement, revenue generation, or business process efficiency gains? These symptoms indicate you need to add resources. If not, your IT spend is sufficient.
Ultimately, how much you spend compared to other organizations is a less important question than, “Is my organization effectively using technology to advance the strategic goals of the organization?” Managing technology spending is important, but it’s better to focus on advancing the technology maturity of your organization.