You Sign Off Millions in IT Spend. Can You Say What You're Getting?
Organisations spend millions on IT annually yet struggle to articulate actual value received. When questioned about expenditure quality, IT responses tend toward lengthy explanations lacking clear financial context—an approach that would be unacceptable for headcount, marketing, or capital expenditure.
Step 1: Use Two Simple Benchmarks
IT Spend as Percentage of Revenue
Organisations should evaluate spending against sector norms:
- Traditional sectors (manufacturing, construction): often 2–3% of revenue
- Retail, consumer, general services: typically 3–5%
- Information-heavy sectors (finance, professional services, tech): 5–11%
Spending below 1–2% suggests under-investment and hidden risk, while exceeding 8–9% in non-tech businesses warrants clear justification.
Run / Grow / Transform Split
Every IT expenditure falls into three categories:
- Run: maintaining existing systems (licences, support, hosting, staff)
- Grow: enhancing current capabilities (small projects, improvements)
- Transform: fundamental business changes (major upgrades, new platforms)
Typical mid-market distribution shows 65–80% on Run, with remaining funds distributed between growth and transformation. Budgets exceeding 80% Run indicate funding a utility rather than a change engine.
Step 2: Find the Three Leaks
Leak 1: Unused SaaS Licenses
Research indicates 30–50% of software licences are unused or badly under-utilised. Request reports showing:
- Top 10 SaaS applications by cost
- Purchased versus active users (30-day window)
- Current license tiers
Key actions: downgrade or reclaim licenses for users with no log-in for 30 days, reduce seats for applications with under 70% active usage, and downgrade tiers where users primarily access basic features.
Leak 2: Cloud Waste
Analysts estimate 30–35% of cloud spend is wasted on idle resources and over-provisioned environments. Request monthly spend trends and identify services running 24/7 without production justification. Proper optimisation routinely cuts 20–30% from cloud bills.
Leak 3: Duplicate Tools
Decentralised purchasing often creates overlapping products across categories like project management, surveys, and security. A simple governance principle: one default tool per category with documented exceptions, consolidating duplicates over time.
Step 3: Turn the Budget into a Management Report
Rather than presenting costs as lists, create monthly management reports showing:
- Budget versus actual figures
- Run/Grow/Transform percentage distribution
- Significant variances explained in monetary terms
- Top three cost-reduction opportunities
- Top three business outcomes funded
This approach forces IT communication around outcomes rather than technology.
Step 4: Ask Different Questions in the Next Budget Cycle
Four key questions should guide budget discussions:
- Non-discretionary Run assessment: Testing whether all "Run" spending is genuinely fixed or could withstand 10–20% reductions
- Business plan alignment: Connecting projects over materiality thresholds to specific revenue, margin, or risk impacts
- Duplicate betting: Identifying redundant systems targeting identical problems and selecting priority initiatives
- Trade-off discipline: Requiring corresponding "stop" or "slow" decisions for each new initiative
Step 5: Build One Simple Governance Rule
Implement mandatory one-page investment cases for major IT spending above materiality thresholds (suggested £50k):
- Problem articulation with financial impact (lost revenue, wasted hours, error rates, compliance risk)
- Solution description in plain language, avoiding technical jargon
- Annual benefit projection (savings, margin improvement, risk reduction) with implementation costs and payback periods
Expected Outcomes
Organisations implementing this approach typically observe:
- Obvious waste identification: excess SaaS subscriptions, unnecessary environments, and duplicate tools generate savings of 10–20% of discretionary IT spend annually
- Visible spending distribution: Run/Grow/Transform splits become transparent, prompting strategic discussions about budget allocation
- Reduced opacity: IT budgets transition from incomprehensible allocations to transparent, challengeable investment portfolios
The objective: moving from uncertainty about IT spending to clear understanding of expenditure, value delivered, and identifiable waste sources—establishing the foundation for improved financial decisions.