Let’s say for example that you own a small business that experiences, on average, ten major IT related issues per month. In response, you commit $1000 per month to your IT budget in order to resolve these issues.

Several months go by, and at this point, the number of major issues has dropped to only five per month. Clearly, you need to get the rest of these issues resolved, so you commit another $1000 to your IT budget.

Again, several months go by, but instead of zero major issues (as you might have expected), you still experience two major issues per month. So what happened?

Conventional wisdom and basic mathematics tells us that if $1000 can resolve half of the issues, then another $1000 should resolve the other half. The law of diminishing returns, however, tells us otherwise.

As you allocate more of your budget toward resolving your IT issues, the cost to resolve them becomes exponentially larger. In this example, the first five issues may have been the easiest to resolve, whereas the next three required the same amount of resources as the first five. The last two issues may be next to impossible to resolve without allocating even more resources than were needed to deal with the first eight issues combined.

So what should a business do? The most important thing is to determine what issues are critical to your business. Then, carefully consider how much time and money you can commit to resolving these issues. Creating an accurate and realistic budget is difficult, but absolutely necessary, and addressing the critical issues first will pay off in the long run.