How to Read Your IT Budget Like a P&L (And Spot the Waste)
You sign off millions in IT spend every year – and still cannot say, with a straight face, what you are getting for it.
Here is the scene: The IT budget lands in your inbox. Line after line of licences, support, projects, cloud. The numbers are large. The explanations are vague. You ask a simple question: “Is this good value?” You get a 20‑minute answer that never mentions pounds.
You would never accept that for headcount, marketing or capex. You should not accept it for IT.
In the next 5 minutes I will show you how to read your IT budget like a P&L: what to look for, what to challenge, and what to change.
Step 1: Use Two Simple Benchmarks
You do not need a benchmarking study. You need two quick checks.
1. IT spend as a percentage of revenue
Most UK SMEs and mid‑market businesses spend around 3–7% of revenue on IT, depending on sector and risk appetite.
- Traditional sectors (manufacturing, construction): often 2–3%.
- Retail, consumer, general services: typically 3–5%.
- Information‑heavy sectors (finance, professional services, tech): 5–11%.
If you are at 1–2%, you are probably under‑investing and carrying hidden risk. If you are above 8–9% in a non‑tech business, you should be able to point to clear reasons (heavy legacy, recent transformation, aggressive growth).
The average is not a target. It is a warning system.
2. Run / Grow / Transform split
Every IT pound falls into three buckets:
- Run – keep the lights on (licences, support, hosting, BAU staff).
- Grow – improve what you already do (enhancements, small projects).
- Transform – change the business (major upgrades, new platforms, automation).
Across mid‑market organisations, it is common to see 65–80% on Run, with the remainder split between Grow and Transform. If more than 80% of your IT spend is Run, you are funding a utility, not a change engine.
Ask your IT lead to take the current budget and mark each line as Run, Grow or Transform. You do not need perfection. You need an approximate split.
If the answer comes back as:
- 80–90% Run
- 5–15% Grow
- 0–5% Transform
…then you have your first story for the board: “Most of our IT budget is keeping old things alive. We are under‑funding change.”
Step 2: Find the Three Leaks
Once you have the big picture, look for the three places mid‑market businesses typically leak money.
Leak 1: SaaS licences nobody uses
Multiple studies show that 30–50% of software licences are unused or badly under‑utilised.
That is where your dead money lives.
Ask for a simple report from your IT team or SaaS management tool:
- For your top 10 SaaS applications by spend
- Number of licences purchased
- Number of active users in the last 30 days
- Licence tier (e.g. Basic / Pro / Enterprise)
You care about two ratios:
- Active / purchased seats – if only 60 of 100 seats are used, 40% of that line is waste.
- Feature usage vs tier – if most users that are on “Enterprise” only use basic features, you are over‑buying.
Then apply three rules:
- Any user with no log‑in for 30 days – downgrade or reclaim the licence.
- Any app with under 70% active usage – reduce seats at renewal.
- Any app where most users use basic features on a premium tier – downgrade the tier for those users.
You will not get this perfect on day one. You will save money anyway.
Leak 2: Cloud waste
Analysts estimate that 30–35% of cloud spend is wasted on idle resources, over‑provisioned environments and forgotten test systems.
Ask your MSP or cloud team for a one‑page view:
- Monthly cloud spend for the last 6–12 months
- Top 5 services by cost (compute, storage, databases, etc.)
- Any resources running 24/7 that are not production
Then ask three questions:
- Which workloads could run on smaller instances without breaching performance?
- Which non‑production environments (test, dev) can be switched off outside working hours?
- Which systems or projects can be retired entirely?
Real‑world clean‑ups routinely cut 20–30% from cloud bills without changing what the business actually does.
Leak 3: Duplicate tools
No one sets out to buy two tools that do the same job. But decentralised purchasing and “we just needed something quickly” decisions mean that many mid‑market businesses pay for overlapping products:
- Two or three project management tools
- Several survey or forms tools
- Duplicated security or backup products
Pull a list of all SaaS applications and group them by function (collaboration, CRM, surveys, e‑signature, analytics, etc.). You are looking where you have three tools and only use one properly.
Set a simple rule: one default tool per category unless there is a clear, written exception. Over time, consolidate onto that default and stop renewing the rest.
Step 3: Turn the Budget into a Management Report
An IT budget is a list of costs. An FD needs a story.
Ask for one page, once a month, that looks something like this:
| Area | Budget YTD | Actual YTD | Run % | Grow % | Transform % | Comments |
|---|---|---|---|---|---|---|
| Infrastructure | £X | £Y | 90% | 10% | 0% | Heavy legacy hosting, cloud migration delayed |
| Applications | £X | £Y | 70% | 20% | 10% | New CRM go‑live in Q3 |
| Security | £X | £Y | 60% | 30% | 10% | Email security upgrade |
| Change projects | £X | £Y | 0% | 30% | 70% | ERP phase 2, automation pilots |
Then add three bullets:
- Biggest variances vs budget (in pounds, not acronyms).
- Top 3 cost‑reduction opportunities (e.g. SaaS, cloud, legacy).
- Top 3 business outcomes funded (what changed for customers, revenue, risk).
You are not trying to learn the technology. You are forcing IT to speak in outcomes and trade‑offs.
Step 4: Ask Different Questions in the Next Budget Cycle
When the next IT budget comes round, do not start with “What do you need?” Start with four questions:
- How much of this is non‑discretionary Run?
What would break if we took 10% out? 20%? You are testing whether all Run is truly fixed. - Which Grow and Transform items directly support the business plan?
For each project over a threshold (say £50k), ask:- Which revenue or margin line is this tied to?
- What risk does it reduce?
- What would happen if we delayed 12 months?
- Where are we betting on the same outcome twice?
Two systems aiming to fix the same process. Two analytics tools. Two “digital experience” projects. Pick one. Defer the other. - What will we stop doing to fund this?
No new initiative should be approved without a clear “stop” or “slow” somewhere else. Otherwise Run just inflates and Transform never grows.
You already have this discipline for other cost centres. Apply the same discipline to IT.
Step 5: Build One Simple Governance Rule
If you only implement one change off the back of this article, make it this:
No major IT spend without a one‑page investment case that a non‑technical board member can understand.
For any project above your materiality threshold (say £50k):
- Problem in pounds. What is this fixing? Lost revenue, wasted hours, error rates, compliance risk. Put numbers on it.
- Solution in plain English. No architecture diagrams. Just what will change for users and customers.
- Impact in pounds. Expected annual benefit once live (savings + extra margin + risk reduction), one‑off implementation cost, ongoing run cost, and payback period.
If the sponsor cannot articulate this on one page, the project is not ready.
This is the same logic you already apply to other investments. You are simply extending it to technology.
What This Looks Like in Practice
When Finance Directors use this approach, three things should happen:
- The 30‑minute review surfaces obvious waste. excess SaaS, unnecessary environments, duplicate tools. Typical saving: 10–20% of discretionary IT spend over a year, without changing core systems.
- The Run/Grow/Transform split becomes visible. Boards see that 70–80% of spend is “keeping the lights on” and start asking better questions about where they want that balance to be.
- The IT budget stops being a black box. It becomes another investment portfolio you can challenge, re‑shape and align with the plan.
You will not fix everything in one cycle. You do not need to.
Your goal is simpler: move from “I don’t really know where it goes” to “I know roughly how much we spend, what it buys us, and where the waste is.”
That should be what your board needs from you on IT. And it is exactly what your IT team needs from you if they are going to spend the money better next year.