Zero-based budgeting (ZBB) asks organizations to continually align operating budgets to strategic goals. This isn’t a one-and-done decision—every year you must revisit assumptions and vote (with your budget) for what is still relevant. The biggest impediments to adopting zero-based budgeting are current “best practices” (a.k.a. what’s already in place) and the spreadsheets that support them.
An annual budget process is burdened with low expectations when IT is seen as a pure cost center. The best-case scenario is to throttle spend through cost-cutting and operational efficiencies. But that’s a defensive posture masquerading as a strategy. Corporate IT must change the narrative of IT spend as "keep the lights on" spend (both internally and with business partners) by redirecting run-the-business spend to grow-the-business innovation.
Traditional budgeting is a blunt instrument to carve out innovation from IT’s finite financial resources. Cost centers habitually suffer across-the-board % changes to their budgets. No nuance. No strategic thinking. Just a number taken off the top. That doesn’t give IT leadership much slack to work with.
Zero-based budgets offer a different path by evaluating all spend and not just new expenditures. This put sacred (budgeting) cows on display to see if past commitments still apply. Traditional budgeting takes what’s gone before and builds on it; zero-based budgets take what’s gone before on advisement and questions past assumptions.
When a line of business isn’t seen as a revenue generator (the textbook definition of a cost center) IT leadership must justify expenses and aim to drive value by optimizing costs. A zero-based budget is a vehicle to get there.
Spreadsheets are many things to many people. Some see them as a data repository; to others, they are a vehicle for pivot tables and charts. But they aren’t your solution of choice for ZBB.
Here are five reasons you need to ditch spreadsheets for zero-based budgeting:
A budget season has multiple stakeholders and inputs. Robust version control and governance need to chaperone the “submission-rejection-resubmission” dance between cost center and budget process owners. Without it, stakeholders lose track of where they are in the process.
There is an argument that all budgeting methods benefit from their own IT planning tool. But ZBBs have specific needs. When organizations look to review all spend (every year) they need to simplify data management. A spreadsheet retro-fitted with IT context can be forced to do that job, but it’s a high-touch, low-value effort.
Manual updates to spreadsheets slow down approvals and compound human errors—undercutting confidence in the whole budgeting process. When cost center owners do not buy into what they are being presented with they take matters into their own hands with budget padding and tardy budget submissions.
IT cost model is the most complicated amongst its shared services peers (sorry HR). There is rarely a 1:1 match between a general ledger and an IT service—each line item is mapped to infrastructure or labor resources that then map to a business service.
Defensible budgets rely on accurate finance-to-IT mappings. Operational changes (e.g., adoption of a “Cloud-first” strategy, infrastructure consolidation, retired applications) impact the cost model of IT services. Trusting that these chances are capture is at best a crapshoot.
An IT analyst and can (proudly) show you all sorts of formula and formatting machinations they’ve used to layer IT context to their spreadsheets. But this ingenuity hides the fact that any insight on unfunded initiatives is limited by the foresight of the person who built the original spreadsheet. If they didn’t think it was important, your spreadsheet doesn’t show it off.
A bad planning solution drives bad behavior. Think of your planning process mapped to Maslow’s Hierarchy of Needs. Your budget process never gets to self-actualization (GTB>RTB) when it’s basic physiological needs (number accuracy) aren’t met. To compensate for poor accuracy, cost center owners game the system to protect them from variance. Budget padding is an understandable response to uncertainty, but it cuts off your IT strategy at its knees.
Zero-based budgeting has been around for decades. Other parts of your organization either use them or have considered them, but IT Finance groups often push back against them. Zero-based budgeting is said to be too culturally jarring and too time-consuming for corporate IT to build and maintain. Examine the myths and explain reality.
Apptio IT Financial Management Foundation is the only product that offers collaborative budgeting, forecasting, variance analysis, and multi-year planning purpose-built for IT. It connects to existing ERP, GL, and chart of accounts solutions such as SAP Financials, Oracle Financials, and NetSuite. Apptio does this via a powerful, purpose-built IT cost modeling engine, which organizes disparate data and applies industry standard cost allocation rules to provide comprehensive views of fully-burdened costs in terms the business understands.