The Little Book of Big Decision Models

MODEL 63

ZERO-BASED BUDGETING: MAKING THE RIGHT BUDGET CUTS

Use this when you have to reduce the budget significantly.

At some time in their career most managers are required to implement swinging budget cuts. The automatic reaction of many is to cut every budget they manage by the required 10, 15 or 20 per cent. This is a mistake. Not all budgets are equal and reducing essential budgets can hamstring an organisation’s ability to trade their way out of difficulties.

Despite the best efforts of accountants most managers use what is called incremental budgeting. They take last year’s budget or actual spend, deduct non-recurring expenses from the previous year and add in any new expenses they can foresee in the coming year.

But incremental budgeting ...