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What is the appropriate amount to spend on information technology?

I have been in the information technology (IT) business for over twenty years and have seen most IT professionals primarily focus on what new capability and benefits from IT they can gain. They usually try to accomplish as much as possible while spending as little as possible – seems to make sense. It also, makes sense to step back occasionally and consider the overall return on investment (ROI) on information technology spending and then compare to industry benchmarks.

What is the appropriate amount to spend on information technology?

In this graph I created from itmWEB data it shows education below 2% of revenue on the low end and I have personally seen IT spending as high as 20% of revenue. I found organizations recommending 15% of revenue to be spent on IT and another study of several Colleges with spending in a narrow band of 4% – 6%. Of course, the amount of IT spending depends on an orginizations level of IT so the question can be circular! How IT intensive is your organization? As an example, the technology budget for Amazon’s book business is probably higher than Border’s but they both sell books.

I would conclude that if you are spending more than 15% of revenue on IT, you are investing for the future, running a very IT intensive organization or building an IT empire! I would think that if your IT spending is below 2% you are extremely efficient, your business is very low on IT demand or your user base is very unhappy!