Budgeting has gained more importance in the recent difficult economic times.  When times are great, there is more room for error when preparing budgets and spending money, but most companies have not had the luxury of such a buffer in the past couple budgeting cycles.

An interesting article from CFO.com looks at the importance of budgeting and at ways to make the process more reliable and easier.  It seems that making things too complicated doesn’t add much effectiveness when it comes to budgeting and that simply starting from the prior year’s figures may also be a pitfall. The article focuses on IT budgets in particular, but the lessons are important in other areas as well.

The group estimated that some companies wasted 5% to 9% of their 2009 IT spending in missed cost-cutting opportunities, largely by revising the previous year’s budget rather than starting from scratch with a zero-based budget. Freshly scrutinizing every line item tends to unearth significant savings, says Andrew Horne, senior research director for the CIO Executive Board.

Overall, after doing the survey and interviewing the respondents, the CIO Executive Board concluded that some companies may be trying too hard to improve their budgeting process.

“If you try to make the process stronger — more elaborate and sophisticated — you’re likely to waste more effort,” says Horne. “The best customer-specific examples we found all pointed in the direction of being faster and more flexible, and thus able to respond to change faster, rather than trying to do more and more to predict change.”

How to Save 11% of Your IT Spend. New research suggests that zero-based budgeting and thorough scenario planning are keys to an optimal IT budget. David McCann – CFO.com. December 14, 2009