Corporate Information Technology (IT) budget planning
Oracle Database Tips by Donald Burleson
Back when I was in MBA school (and
Information Technology was called Data Processing)
the professors taught that a corporation should be spending at least
15% of their net revenue on computerized information systems.
In other words, a company with a $200m net
income should be investing at least $30m on their IT infrastructure.
Undercapitalized spending on computer infrastructure is a major
problem in corporate America as CFO's reject reasonable IT budgets
because they see IT spending as a non-revenue producing, fixed-cost"
Granted, the costs of computer hardware have
fallen by orders of magnitude since 1982, but IT salaries (adjusted
for inflation) have increased slightly.
Consider these changes to hardware technology:
Falling disk costs - Disk costs fall
10x every year, storage media is obsolesced every 25 years, and
RAM-SAN solid-state devices are now replacing disk storage.
CPU speed outpacing RAM speed - CPU
speed continues to outpace memory speed. RAM speed has not
improved since the 1970's. This means that RAM sub-systems must
be localized to keep the CPU's running at full capacity.
Rapid server depreciation - Many
corporation are surprised to see that the server that they spent
$200k three years ago now sells on eBay for 5% of the original
We may remember "Mores Law" which states that
CPU speed will always increase in a predictable fashion. Of
course, prices fall dramatically over time as well:
What is the proper IT budget
Many corporation are discovering that their
investment in IT resources is not a burden but a measurable revenue
Data Warehousing - Market analysis
tools can save millions of dollars each year.
Online sales - Online sales portals
are a major revenue source.
Increase customer goodwill - Better
service builds customer loyalty
While information technology spending remains a
volatile budget area, we now see that savvy corporations are
realizing that they are undercapitalizing their computer units and
they struggle to get the most from their budget dollars. For
CIO Magazine notes that companies are now using on-site training
to reduce travel costs:
"And he urges staff
to take local training courses rather than travel."
While every corporation is unique, the general
rule of IT budgeting remains approximately the same, and the 15% of
net revenue rule appears to remain the "sweet spot" for funding
Information Technology in the private sector.