Zero-Based Budgeting

Another concept you’ll likely encounter is zero-based budgeting. Zero-based budgeting means that the budget for a department or program to be created must always start at zero, rather than a dollar amount from a similar project, and then the new expenses factored in. This long-winded approach generally is required each fiscal year. As Figure 4-3 depicts, zero-based budgeting requires a zero balance at the genesis. In other words, you can’t take last year’s budget for all projects in the IT department, add 20 percent to it, and claim that this new number is this year’s upgrade budget. Zero-based budgeting forces a project manager to reflect the true costs of each project.

Figure 4-3: Zero-based budgeting requires a zero balance at the genesis.

While this approach may seem similar to a bottom-up estimating, it’s often used for a series of projects, an entire department, or a long-term project that may last over several years.

The biggest complaint IT project managers have with zero-based budgeting is that it feels as though you’re doing your work twice. In reality, it forces you to ensure the cost of goods and services have not changed—and if they have, the budget reflects the change in costs. Zero-based budgeting creates a sense of accountability for the project manager with regard to getting an accurate cost of the services and hardware to be purchased.

Some IT project managers will, however, rely on similar budgets and fudge their way through a new budget. Don’t take this route! Why? Why not just take last year’s figures, check out any major changes, and go with the number predicted? Well, it could cost the company money and you your project and your job.