[ITFM#10] Zero-Based Budgeting in IT – A Strategic Reset for Smarter Spending

 Introduction

In uncertain economic times, IT leaders are under mounting pressure to do more with less. Traditional budgeting—where last year’s numbers serve as the default starting point—often leads to inefficient spending, inflated baselines, and unchecked legacy costs.

That’s where Zero-Based Budgeting (ZBB) enters the picture.

Instead of simply adjusting the previous year’s budget, ZBB requires every expense to be justified from scratch. No automatic carryovers. No sacred cows. Every service, project, and cost center must demonstrate its value.

🎯 In this article, we’ll explore what Zero-Based Budgeting means in the IT context, how it supports IT Financial Management (ITFM), and how to put it into practice—with a visual guide to the 5-stage process.

What Is Zero-Based Budgeting (ZBB)?

Unlike top-down or incremental budgeting methods, ZBB starts at zero. Every budget cycle begins with a clean slate. Each expense must be:

·       Evaluated against business priorities

·       Justified based on expected value

·       Aligned with strategic objectives

ZBB forces organizations to question the “why” behind each IT dollar—and rewards proactive planning, not inertia.

Why It Matters for IT

IT departments often carry years of technical debt and hidden costs: underused software licenses, zombie servers, outdated services, and contracts that renew without scrutiny.

Zero-Based Budgeting creates an opportunity to:

·       🔍 Eliminate low-value or unused services

·       📉 Drive down bloated budgets based on legacy systems

·       🔄 Reallocate spend toward transformation initiatives and innovation

✅ In short: ZBB helps align IT spending with real business value.

🧭 The 5-Step IT Budgeting Cycle (Gartner Framework)

To implement ZBB effectively, a structured, strategic approach is essential. Gartner outlines a five-stage cycle that aligns perfectly with ITFM goals:

[1]

1.       Financial Transparency Understand where the money goes. Categorize and track IT spending by service, vendor, and business unit. This is the foundation of ZBB.

2.      Strategic Priorities and KPIs Align spending with what matters. Define measurable outcomes and ensure budget items support key business goals and performance indicators.

3.      Align, Evaluate, and Optimize Evaluate each cost element. Is it still needed? Is there a more efficient alternative? What impact does it deliver?

4.      Control and Monitor Set spending limits, approval workflows, and reforecasting checkpoints to ensure accountability throughout the year.

5.      Value-Based Spending Prioritize investments based on return—not tradition. Shift the conversation from “What did we spend last year?” to “What do we need to achieve this year?”

Benefits of Zero-Based Budgeting in IT

✅ Cost Discipline – Prevents budget creep and reduces waste

✅ Strategic Focus – Encourages alignment between IT and business goals

✅ Agility – Supports dynamic reallocation of funds to high-impact areas

✅ Accountability – Forces clear justification for all spending

Challenges and Risks

⚠️ Time-Intensive – ZBB requires more stakeholder input and analysis

⚠️ Change Resistance – Teams may push back against losing “guaranteed” funding

⚠️ Data Dependency – Poor cost transparency can derail the process

⚠️ Short-Term Focus – May undervalue long-term investments if not balanced properly

📌 ZBB isn’t for every organization—or every budget cycle. But when applied selectively (e.g., by service category or business unit), it can be a powerful tool in the ITFM playbook.

Conclusion: A Fresh Perspective on IT Spending

Zero-Based Budgeting offers more than just cost-cutting. It brings discipline, visibility, and strategic intent to IT budgeting—making it a natural fit for organizations practicing IT Financial Management.

Whether applied company-wide or to select IT domains (like software, cloud, or infrastructure), ZBB encourages the kind of critical thinking IT leaders need in today’s cost-conscious environment.

💬 Have you tried Zero-Based Budgeting in your organization? What lessons did you learn? Let’s exchange ideas in the comments!

References

[1] Gartner. "Use Zero-Based Budgeting to Rightsize Your Function's Budget" Retrieved from https://www.gartner.com/smarterwithgartner/use-zero-based-budgeting-to-rightsize-tight-budgets

[2] McKinsey. "Five myths (and realities) about zero-based budgeting" Retrieved from https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20myths%20and%20realities%20about%20zero%20based%20budgeting/Five_myths_and_realities_about_zero%20based_budgeting.pdf

👤 Authors: Maltrim Ebipi, Junior Associate ; Alexandre Gay, MD and Head of Delivery at BG&A

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At BG&A, we specialize in IT Financial Management, cost optimization, investment cases, and TCO analysis. This article is part of our ongoing newsletter, designed to provide deep insights, expert opinions, case studies, and practical tools to help organizations navigate IT financial management successfully.

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🔹 Warm regards,

The BG&A Team