IT budget for 2020: splitting between maintenance and growth
Year-end is budget planning season. How to think about allocating IT spend between what already exists and what needs to be built.
November is when many companies are planning budgets for the coming year. IT budgets are one of the hardest sections to justify: it is difficult to explain to a board or shareholders why money needs to be spent on things that already work, or on things that are hard to measure in the short term.
I run into this conversation regularly and see two recurring mistakes - in opposite directions.
The first: the budget is cut where there are no obvious failures. "Everything is working - why pay more?" The result is accumulated technical debt that at some point becomes an expensive incident or an inability to launch something new.
The second: the budget is invested in new things without understanding what is holding the existing system together. "Let us launch a new platform." They launch it - but the old systems keep running alongside it, because migrating turned out to be more expensive than expected.
How IT spend is structured
A useful framework for a conversation with the CFO: IT spend divides into three categories.
The first is keeping things running (Run). Everything needed for existing systems to keep working: licences, infrastructure support, patches, backups, monitoring. These are mandatory costs - without them the existing business is at risk. Cutting them needs to come with a clear understanding of what stops being supported.
The second is managing change (Change). Upgrades, migration, refactoring, clearing accumulated technical debt. This spending does not deliver new functionality, but it reduces the risk and cost of future changes.
The third is growth (Grow). New projects, new capabilities, adoption of new technologies. This is where there is a visible result that is easier to justify - and where there is the greatest risk of prioritisation mistakes.
A typical split in mature companies is roughly 60-70% Run, 20-25% Change, 10-15% Grow. If your company is at 90% Run, that signals frozen development. If it is 50% Grow without a stable foundation, that is a risk.
What to know before the budget conversation
A few specific questions worth asking the CTO or technical team before the numbers are fixed:
- Which systems are currently running on versions the vendor no longer supports?
- What percentage of incidents in the past year were connected to technical debt rather than new functionality?
- Is there anything in the change backlog that is not getting done because of the state of the base infrastructure?
- What happens if a specific system goes down - what is the real business impact?
Answers to these questions turn the budget conversation from "IT is asking for money" into "here is what we are protecting and why."
A practical note
The most useful thing I have seen in budget conversations is an explicit link between spending and risk. Not "we need X for security", but "if we do not invest X, here is exactly what becomes unprotected and here is what that could cost."
Leaders make better decisions when they see the trade-off clearly. An IT budget is not a resource request. It is a set of decisions about risks the company is or is not willing to accept.