Zero-Based Budgeting


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.

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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.

Imagine that you take last year s budget for server upgrades, add 20 percent to the budget, and claim it as this year s project budget. When it comes time to actually purchase the hardware, what will happen if the cost of the hardware from last year has increased due to supply and demand? Or what if the servers you used last year are no longer available and the next step requires purchasing a server that costs 30 percent more than a similar server last year? You ll have much explaining to do.

When you are asked to use zero-based budgeting, use it. Even if the project is identical to a previous project, investigate the costs of goods and services required to complete the project and report them accurately. It s not always fun, but that s why it s called work.




IT Project Management
IT Project Management: On Track from Start to Finish, Third Edition
ISBN: 0071700439
EAN: 2147483647
Year: 2004
Pages: 195

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