CFO Should Consider IT Zero Based-Budgeting

During the economic downturn, companies have trimmed their information-technology spending by holding off on purchases and retooling existing systems to squeeze out extra efficiency. But an additional chunk of savings could be realized merely by revamping the IT-budgeting process.

How much could be saved by better budgeting? In some cases, more than 10% of the pie, according to the CIO Executive Board, a networking and research group run by the Corporate Executive Board.
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The CIO Executive Board created a model of best budgeting practices, based on a survey of 200 of its member IT executives about their budget planning for this year. It then compared the model with practices employed by companies at the other end of the efficiency spectrum to determine potential savings.

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.

Just taking the previous year's budget and marking it up or down by a certain percentage involves making assumptions about how this year will be different from last. Assumptions about how many software licenses will be needed, for example, often prove fairly accurate, Horne notes. But if a company spins off a division or, as happened at many companies this year, lays off employees, the number of licenses needed may be radically different. The many IT projects that were slowed down, put on hold, or canceled in 2009 also curtailed licensing needs.

Of course, it's impossible to fully predict change, the CIO Executive Board noted in its research report. But budgeting should be made more flexible through the use of scenario planning so that IT spending can quickly adapt to new business circumstances.

Read rest of Article at www.cfo.com