IT Software Budgeting: Building Next Year's Budget From Real Contracts
How to build next year's software budget from actual contracts: start from committed spend, add renewals and growth, subtract planned savings, and track it monthly.
By the MI Solutions SAM team11 min read2 exhibits
Most software budgets are built by taking last year's number and adding a percentage. It is fast, and it is usually wrong in both directions: it misses renewals with large price increases, and it carries forward spend on tools that will be retired or reduced. A budget built from actual contracts is more accurate, easier to defend, and turns every renewal into a planned decision.
Why "last year plus 5%" fails
01It hides price uplifts
A renewal with a 9% uplift and one with a 3% cap are budgeted the same way.
02It carries waste forward
Tools being retired or reduced keep their full budget.
03It misses timing
A three-year agreement renewing next year can jump far more than 5%.
04It has no owner
Nobody can explain the number, so nobody can defend it.
The budget bridge
Exhibit 1
Each bar in the bridge is the sum of contract-level lines. That is what makes it defensible: if finance asks why price uplifts add $210K, the answer is a list of contracts, their uplift clauses and their renewal dates.
Step by step
List every contract
With its annual value, term, renewal date and notice period.
Headcount-driven licenses for the products that scale with people.
Add new projects
With their expected software, agreed with project owners.
Subtract planned savings
Reclaim, right-sizing, consolidation and retirements.
Record a decision per line
Keep, renegotiate, reduce or do not renew.
What finance needs to see
Exhibit 2
Track it monthly
Compare planned and actual spend every month. Variances usually come from timing, unplanned purchases or consumption. See planned vs actual.
How MI One helps
Frequently asked questions
When should software budgeting start?
Three to four months before the fiscal year, so renewal decisions can be reflected.
Who owns the software budget?
Usually IT, with finance as partner and business owners accountable for their applications.
How detailed should the budget be?
Contract by contract for the largest vendors, and grouped by category for the long tail.
See where your software budget goes
Bring your five largest vendors to a 30-minute call. Our SAM experts will show you where the savings usually hide, and how fast MI One can surface them.
