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Budget Success Means Changing Past Practices
OTHER PARTS OF THIS ARTICLEPt. 1: Building a Stronger Budget Requires Solid DataPt. 2: This PagePt. 3: Benefits from Zero-Based Budgeting and EMPs
History does not offer many useful lessons. In my experience, a typical budget process goes like this:
- Get a copy of last year's budget.
- Review it and make adjustments as required.
- Submit it for approval.
- Top management returns and questions the budget, requesting a 15 percent reduction.
- Review, reduce, and resubmit the budget.
- Top management approves the budget — for 22 percent less than originally requested.
Instead of this worn-out approach, I propose a multidisciplinary approach: zero-based budgeting using an equipment maintenance plan (EMP) and historical spending.
Zero-based budgeting does not reference or review previous expenditures. Instead, it requires that managers thoroughly re-evaluate all expenses requested, starting from zero. The benefits of using this approach are that it uncovers wasted or poorly used resources, identifies areas for improvement or potential reduction, and allocates time, resources, and staffing more efficiently and effectively.
Zero-based budgeting is action-based. This means managers must justify all department activities, including those related to human resources. Using this approach does take more time, as you can imagine. That is why I suggest using it in conjunction with the other two approaches in order to obtain the maximum benefits from the effort.