IT budgets can be broken down into 3 core components: Vendor Contracts, Staff and Depreciation. However, some IT Finance teams tend to ignore non-cash items such as depreciation.
If your budgets are used for decision-making purposes for your project initiatives, then ignoring depreciation results in organisations not having a clear like-for-like comparison for critical decisions such as Cloud Migrations (eg SaaS, IaaS), re-platforming, consolidation of systems, etc.
So, why is incorporating depreciation challenging?
That is because it requires good asset-level information and an IT Service Catalogue, so one can identify if depreciation relates to upgrades of infrastructure such as data-centre or storage vs upgrade undertaken to a specific IT Service. And unfortunately, not all organisations have this in place.
In conclusion, if your 2020 IT Strategy involves a Cloud First Policy or a major Transformation initiative, you could be basing decisions on flawed financials – unless you address non-cash items such as depreciation.