Moderate IT budget increases have CIOs shaping 2025 strategies to suit

With uncertain economic conditions on the horizon, including stubborn inflation in many parts of the world, high interest rates, and volatile stock markets, CIOs face unique budgetary pressures for the year to come.

Despite those complications, a huge majority of IT leaders expect their organizations’ IT budgets to increase — at least moderately — in the next fiscal year, with IT talent and software spending leading the way.

More than nine in 10 IT decision-makers project their budgets will increase in 2025, according to the Forrester 2025 Budget Planning Guide for Technology Executives. €

Percentage increases at most organizations will be in the single digits, however. Four in 10 IT leaders surveyed by Forrester expect IT budgets to increase by less than 5%, with about the same percentage expecting a rise by 5% to 10%.

A slim portion of IT leaders (8%) expect bumps of more than 10%, while 9% expect their budgets to stay the same or decrease slightly.

That spectrum of budget adjustments is being met by a range of strategies by IT leaders seeking to make the most of their 2025 IT spend.

Talent, software spending lead the way

According to Forrester’s guide, personnel accounts for nearly 35% of IT budgets. CIOs and other IT leaders are investing additional funds in employee training in AI and other technologies key to the future of business, Forrester says.

Software, meanwhile, currently makes up about 21% of IT budgets, but Forrester projects a compound annual growth rate in software spending of 10.5% through 2027. With Forrester projecting a 5.3% increase in IT spending overall in 2024, compared to 4% in 2023, software spending growth suggests CIOs need to adjust their budgets downward elsewhere.

Moreover, World Economic Outlook projections for inflation in 2025, estimated in July at 3.3%, flattens some of the gains for IT budgets in the coming year.

“Those spending increases are modest and not always enough to keep up with stubborn inflation, so carefully planning where to invest, where to pull back, and where to pilot and experiment will be paramount,” Forrester’s guide suggests.

Earlier this year, Forrester competitor Gartner projected a worldwide IT spending increase of 8% in 2024.

Investment mode for some

SnapLogic, an integration-platform-as-a-service provider, is among the companies expecting to bump up its IT budget, says Jeremiah Stone, CTO at the company. It’s a good time to invest in generative AI, as leading companies began to find strong use cases, he says.

“While many organizations are contending with tight budgets, overloaded teams, and fewer resources, now is a strategic time to invest,” he says. “We, and many of our customers, are turning to gen AI to create efficiencies for established pieces of our business, both for individual workers but also among teams and processes.”

It was natural for SnapLogic, which helps customers improve their business processes, to adopt AI internally, Stone says. SnapLogic has launched AI applications in its finance department, to calculate monthly revenue projections; in its sales department, to automate RFP responses; and in its marketing department, to assist with writing website content. The HR team is planning to use AI to rewrite job descriptions.

Although Stone isn’t sure how much the company’s IT budget will go up in 2025, SnapLogic is investing for growth, he says.

“You have three choices,” Stone says. “You can either invest for growth, which means you need to be above industry average; you can invest for stasis, which means basically flat and absorb any churn; or you can downsize and look to cut your bottom-line expenditures.”

Stone also predicts IT spending to increase at many organizations as they focus on modernizing outdated systems, reducing technical debt, creating new revenue streams, and building the foundation to adopt gen AI.

Even with global economic uncertainties, organizations that aren’t investing in AI risk getting left behind, he adds. The promise of AI outweighs concerns about interest rates and global conflict.

“We are starting to see detailed, specific return on investment from early experiments with generative AI, and that ROI is of sufficiently high confidence to drive investment in the face of economic and political uncertainty,” Stone says.

Saving money, taking small steps forward

Forrester factored in some economic uncertainty, even though it published its guide before some volatility in global stock markets in early August, says Christopher Gilchrist, a principal analyst at Forrester. The spending projections still apply, even though high interest rates in some regions may prompt many organizations to plan to complete IT upgrades in stages, he says.

“What we’ll start seeing is organizations will compartmentalize a lot of their long-term transformation projects into more bite-size pieces,” he adds. “Rather than this big, sweeping transformation of five years, it’s going to be strategic temporary endeavors over the course of those five years, where it’s much more about incrementally progressing than taking one fell swoop to progress all at once.”

Given the modest increases or flat budgets expected by many IT leaders, Forrester advises them to clean up their data and put guardrails in place before investing heavily in AI.

With tight budgets, CIOs should also look for cloud sprawl within their organizations and cut unneeded and redundant cloud services, Forrester recommends. IT leaders should also look to “ruthlessly” automate manual processes and cut nonessential VMware licenses and contracts following recent, and sometimes, large price increases, the analyst firm suggests.

Cloud sprawl is common, as many organizations in recent years rushed to adopt the cloud but didn’t have a fully formed cloud strategy, Gilchrist says. The same scenario will likely play out with the rush to adopt AI, he predicts.

“The natural tendency of organizations is to focus on implementing the cloud, not necessarily adopting once they’ve implemented the cloud,” he adds. “There’s one thing to implement Azure, and there’s another for the organization to actually organize itself around what’s been implemented. There’s been this massive shotgun approach: ‘We need to try out cloud, we need to experiment.’”

Diverse views on IT spending

Some IT leaders at a diverse set of organizations say their IT budgets are expected to receive a modest increase in 2025 — and are taking targeted approaches to make the most of it.

Freshworks, a SaaS provider for customer service, CRM, and other IT functions, expects budget increases centered on automation and AI, says Ashwin Ballal, CIO of the company.

“We are focusing on tools that reduce soul-crushing busy work and complexity, while offering the thoughtfulness, functionality, and speed of problem-solving that today’s workforce requires,” he says. “The truth is, most IT teams — and employees more broadly — are overburdened by their workload and ever-present demands for growth and higher quality.”

There are some outliers on the IT spending curve. Tyler Fisher, COO at mental health support app maker Counslr, expects the company’s IT budget to increase by up to 25% in the next year, he says.

The company, founded in 2019, has reached a size that it’s insulated from some “whims” of the broader market, he says.

“We don’t yet have any overbearing dev expenses that can significantly weigh us down on the business back end, and since we have great individual relationships with each of our customer organizations, we feel confident on the front end as well,” Fisher says.

Mental health providers may also be less hurt by an economic downturn than many other industries, he says. “People are worse off, physically and mentally, during difficult economic times,” he adds.

On the other end of the spending spectrum is Barco ClickShare, a meeting room technology provider. Daniel Root, head of global strategic alliances, doesn’t expect an increase in the company’s IT spending. The company has already planned out its near-term IT initiatives, including upgrades to its global meeting spaces for better hybrid communications and collaboration, he says.

“Our strategy revolves around continuous incremental improvement, with budget allocations already planned,” he adds. “These projects promise significant time savings for our staff, even if the cost savings are minimal.”

Root is keeping an eye on several external global factors, including a slowing US economy, upcoming elections, tensions in the Middle East, and energy costs, when he plans future IT budgets, he says.

“While we take these matters seriously, we must continue to make necessary investments without overcommitting during uncertain times,” he says. “Our customers share similar concerns, and we observe a global trend of cautious spending, with businesses wary of potential disruptions that could impact major markets.”