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Average IT Budget

Q. Does anyone know of a research article that outlines the typical percentage of IT costs in proportion to company revenue? For example, 1% of a $50 million company, etc.
Keith Murley
Schimenti Construction Company

A.  It depends on whether you are actually laying bricks, mortar and asphalt, as opposed to building virtual models of the real world. In my world, it’s closer to the 1% number.
Dean Word III
Dean Word Co., Ltd.

A. With everything we are at less than 1%. Hardware, Microsoft EA, data/phone, colocation of datacenter, all software licenses, administrative salaries, training, travel, outside professional services. Cell phones are not part of that; that would push it over the 1%, but not by much.
Todd Eldredge
Donley's

A. Thanks for the feedback everyone. From what I gathered here and some other research articles, it seems to be between the .75% and 1.6% area.

It's always helpful to have statistics while proposing a renewed IT budget. Here's another point I feel is valid: if technology can save the company significant dollars in other areas, say, for instance overtime costs, then it would be reasonable that the IT budget may increase, but the overall company spend should decrease.

Any other thoughts regarding the IT budget? Do the majority of IT folks here put together a formal budget, or is it a "pay as you go" scenario?
Keith Murley
Schimenti Construction Company

A. Ours is typically 0.6% to 0.8% of revenue or thereabouts for the basics such as hardware, network, etc and it is very centralized.  We do a formal budget annually.

All the stats I have seen have construction at the lowest end of the IT budget vs revenue ratio, which ranges from 0.5 to 1.5 percent for our industry but those stats at the higher end may include special projects, etc. 
Nige Wingate
Mortenson Construction

A. If you are trying to fit your IT budget into a specific percentage of revenue model, it would be helpful for you to know how your company views depreciation expense on capitalized IT expenditures as it relates to the IT budget. Sometimes non-accounting folks either don’t consider this or they lump the whole amount as an expense into the year the item was procured. As a CFO, I include depreciation on IT assets as part of the overall IT budget because it represents a purchase that is expensed over three to five years. But each company (or CFO) may view depreciation differently with respect to the IT budget process.  Also, each company may interpret standard accounting rules slightly differently as to which purchases are capitalized vs. expensed immediately. 

As for your last question, our IT manager and I put together a detailed forecast for the year (including essential need vs. "would be nice" lists) and we update it periodically during the year.  
Connie Marschke, CFO
VJS Construction Services, Inc.

A. As far as I can tell at my company I am the only one that keeps track of department expenditures on an annual basis and supply this information to the president which I can tell he welcomes.

Other departments within my company operate the same way but don’t supply documented expenditures.

We do not operate on departmental budgets.
Jim Gaba
Sierra Nevada Construction, Inc.

A. This is our first year to do a formal IT budget.  I am keen to know what our technology spend, as a percentage of gross revenue will be, after this year has ended.  I am new to the specialty contracting business (electrical and low voltage), and am finding that budgeting here is much harder than for higher education, my last gig.  Job sites ramp up and need/want a lot of gear.  It’s hard to know what jobs we’ll get and when they will come, so that part of budgeting is challenging.  We do plan capital purchases to line up with our company’s strategic plan, though timing of acquisition is variable.

For the first time, our company is now pushing all technology purchases through the IT department, so we can measure our tech spend.  I do allocate the expense for purchases to either a job or a department, as best I can.  We do capitalize purchases that meet our CFO’s guidelines.
Chris Zeppa
Walker Engineering, Inc.

A. I'm with you Chris. Budgeting for the construction industry is a much different animal than other sectors; my background was previously in the healthcare industry, so IT expenditure differed greatly from the current environment.

One of the advantages we've seen through the creation of a semi-formal IT budget (given the changing factors of projects throughout the year, etc.) is visibility into IT expenses. Helping the business understand where IT dollars are currently spent helps correlate the value provided, and in addition, potentially generate more department revenue for areas needing support, such as training.
Keith Murley
Schimenti Construction Company