Engineering Budgeting and Technology Cost Models
Engineering and technology cost management is a critical leadership skill — poorly managed technology costs create business risk and constrain growth. Understanding the major cost components, how to model them, and how to communicate technology investment to financial stakeholders enables better decisions and stronger alignment between technology and business leadership.
Technology Cost Categories
- People costs: Typically 60-80% of technology budgets — salaries, benefits, contractor costs, recruiting. The most significant lever and the hardest to cut without consequences.
- Cloud/infrastructure: Growing rapidly as businesses move to cloud. Key metrics: cost per transaction, infrastructure as % of revenue. FinOps practices optimise cloud spend.
- Software licences: SaaS tools, development tools, security tools, productivity software. Inventory and rationalise regularly — shelfware is common.
- External services: Consultants, managed services, outsourced functions
CapEx vs OpEx
Historically, technology was CapEx-heavy (hardware, licences). Cloud and SaaS shift spending to OpEx. This has accounting implications — CapEx is capitalised and depreciated; OpEx hits the P&L immediately. CFOs increasingly prefer OpEx for flexibility; some CFOs prefer CapEx for balance sheet reasons. Understanding the implications helps in structuring technology investment conversations.
Unit Economics
Map technology costs to business unit economics: cost per customer, cost per transaction, infrastructure cost as % of revenue. These metrics connect technology spending to business performance and make technology investment conversations productive rather than adversarial.