Trump EO Puts Federal Budgeting on a Zero Base

Zero-Based Budgeting (ZBB) is a particular approach to managing organizational resources which I have known from previous consulting experience. It doesn’t take a rocket scientist (although Doge has at least one of them) to know that branches of a bureaucracy grow like topsy driven by internal incentives. The game is played by finding a new territory to regulate and add it to the mission scope to justify the added people, dollars and facilities. Managers increase their power, prestige and salaries by adding staff and resources, the bigger the agency budget the better. As one Doge leader put it, government only rachets upward, nothing is ever taken away.

Now that the US is the nation with world’s largest debt, there is no option other than to ratchet downward by streamlining and rightsizing focusing on the essentials, and discarding the rest.

What is ZBB method for meeting the desperate need to trim the US federal government. (Source: Investopedia)

How Zero-Based Budgeting (ZBB) Works

ZBB allows top-level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization. Costs can then be first grouped and then measured against previous results and current expectations.

Zero-Based Budgeting vs. Traditional Budgeting
Traditional budgeting calls for incremental increases over previous budgets such as a 2% increase in spending. Zero-based budgeting requires a justification of both old and new expenses.

Traditional budgeting also only analyzes new expenditures. ZBB starts from zero and calls for a justification of old, recurring expenses in addition to new expenditures. Zero-based budgeting aims to put the onus on managers to justify expenses. It drives value for an organization by optimizing costs, not just revenue.

What Are the Advantages of Zero-Based Budgeting?

Zero-based budgeting starts from scratch, analyzing each granular need of the company instead of using the incremental budgeting increases found in traditional budgeting. This essentially allows for a strategic, top-down approach to analyze the performance of a given project

Zero-based budgeting offers several advantages, including focused operations, lower costs, budget flexibility, and strategic execution. The highest revenue-generating operations come into greater focus when managers think about how each dollar is spent. Lowered costs may result because zero-based budgeting may prevent the misallocation of resources that can happen over time when a budget grows incrementally.