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Advantages and disadvantages of internal zero-based budgeting

Some law departments attempt to create their internal budgets from the ground up each year (See my post of July 6, 2007: an example of zero-based budgeting.).

Advantages of zero-based budgets are that they challenge received wisdom. Social passing of line items fails. The process also tends to get more people involved and therefore heightens consciousness of spending and controls on it. Similarly, more involvement brings in fresh perspectives. “Why do we spend so much on watering plants?”

On the down side, however, a start-all-over budget may not in the end make all that much difference. Internal costs are fairly steady. It certainly takes more time and effort. Lastly, a zero-based process may raise contentious issues best left alone to be decided by managers – “Tell me again who is eligible for MBA tuition reimbursement?”.

If zero-based budgeting is done properly it requires significantly more meetings, communication, and creative thought than a normal budget process, and very few law departments need to spend these extra resources each year. Instead they might want to do so every two or three years as a purgative.
(See my post of Sept. 9, 2008: internal budgets with 27 references; and Sept. 12, 2008: internal budgets with 25 references.).