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The 4 Functions of an IT Budget That IT Managers Need To Know
By Jim Anderson

What you can accomplish as an IT manager is closely tied to how much money the company is willing to entrust you with. The more money that they are willing to give you, the more you’ll be able to get done. The way that you’ll get your hands on the company’s money is to create a budget and then manage it. Let’s talk about what you’ll need to know in order to do this correctly.


IT managers get to show leadership by starting their budget creation process by thinking about what their team is going to be asked to accomplish during the upcoming year. This is done by selecting the goals that you want your team to achieve. In most cases these goals will relate to the overall goals of the IT department or the ones that your company’s senior management have set for the firm.

Your next step will be to evaluate how you can achieve these goals. There is always more than one way to make this happen. At the same time you are going to want to take a close look at each option and use your best judgment to determine what you think the most likely outcome would be.

Once you’ve identified your options and their probable outcomes, now comes time for you to make a decision. Using the costs and benefits of each option, pick the one that you believe will have the best chance of leading your team towards accomplishing their goals.

Coordinating and Communicating

Most IT leaders will have multiple goals that they will want their teams to accomplish each year. This means that the budgets that they are creating will have multiple parts to them.

It’s the job of the IT manager to communicate to the different parts of the team that may be helping to create the pieces of the budget just exactly what the team’s strategic plan is. The goal is to have this knowledge used when creating each component of the budget.

Once each part of the budget has been created, they will need to be brought together into a master budget for your team. This is where the IT manager needs to balance and combine the different parts in order to create a master budget that reflects what he or she wants the team to accomplish during the upcoming year.

Monitoring Progress

Once your budget proposal has been approved and your team has been given the money (or at least part of) that you had requested, now you have to monitor how it’s being spent. The easiest way to do this is to compare the team’s actual results to the budget.

If it turns out that something is out of whack, then this is when you need to step in and take some form of corrective action. The official term for out-of-whack is called “variance”. This occurs when there is a difference between the actual results and the results expected in your budget. A variance can be both favorable (when results are better than was expected) or unfavorable (when results are worse than expected).

Evaluating Performance

At the end of the day, as an IT manager you need to expect to have your performance evaluated at least in part by your budgeting skills. Where you able to accurately predict how much funding your team would need in order to accomplish their goals? Once given the funding, were you able to monitor it and make sure that you only spent what you had and produced the results that you had predicted?

Your overall success will be determined by comparing the actual results that your team achieved to the budget that you created at the beginning of the year. In most companies, this will play a key role in determining your performance evaluation for the year.

What All Of This Means For You

In order to be a successful IT manager you are going to have to prove to the company that you can use its money to successfully meet goals. In order to do this you’re going to need some money and that means that you’re going to need to have a budget.

Budgets don’t just magically show up: you need to sit down and plan what your team’s financial needs are going to be. Budgets are generally made up of multiple parts and so you’re going to have collect all of the available information and create a single master budget from it. After the company gives you your money, you’ll need to use your budget in order to monitor the progress of your IT dream team. Finally, at the end of the year you need to realize that your performance as an IT leader will in part be evaluated by how well you used your budget to meet your goals.

As much as we’d like to think that our technical knowledge is what will propel our IT careers forward, it turns out that it is really our business skills that will determine how far we’ll go. Knowing how to create and manage an IT budget is a key skill that you’ll need to have.

Jim Anderson has been a product manger at small start-ups as well as at some of the world’s largest IT shops. Dr. Anderson realizes that for a product to be successful, it takes an entire company working together. You can learn more about Dr. Anderson on his website, You can subscribe to his newsletter here.

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