You Sign Off Millions in IT Spend. Can You Say What You're Getting?
Most organisations spend millions on IT every year. Ask what you're getting for it and the answer tends to be a long explanation full of technical detail but short on financial clarity. You wouldn't accept that from any other budget holder.
Step 1: Use Two Simple Benchmarks
IT Spend as Percentage of Revenue
Start by comparing your spend 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)
In most mid-market businesses, 65–80% goes on Run. The rest splits between Grow and Transform. If more than 80% is going on Run, you're funding a utility, not a function that's helping the business move forward.
Step 2: Find the Three Leaks
Leak 1: Unused SaaS Licenses
Studies consistently show 30–50% of software licences are unused or barely touched. Ask your IT team for:
- Top 10 SaaS applications by cost
- Purchased versus active users (30-day window)
- Current license tiers
The rules are straightforward. No log-in for 30 days? Reclaim the licence. Under 70% active usage? Reduce the seats. People only using basic features? Downgrade the tier.
Leak 2: Cloud Waste
Analysts estimate 30–35% of cloud spend is wasted: idle resources, over-provisioned environments, and services running round the clock for no good reason. Ask for monthly spend trends. In most cases, a proper review cuts 20–30% from the bill.
Leak 3: Duplicate Tools
When different teams buy their own tools, you end up with three project management platforms, two survey tools, and overlapping security products. The fix is simple: one default tool per category, with documented exceptions. Consolidate the rest 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 shifts the conversation from what IT is spending to what IT is delivering.
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
When we've done this with clients, the results tend to follow a pattern:
- 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
- Clearer budgets: IT spend stops being a black box and becomes something you can actually challenge and understand
The goal is straightforward. Know what you're spending, know what you're getting, and know where the waste is. Everything else follows from there.