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Overcome budget inertia – forget previous figures

How many times have you conducted budgeting yourself or participated with others in your organization or client entity when the process is closely based on last year’s figures and cost assumptions? If most of your budgeting for small or large projects or annual planning has been on that basis, you are in plenty of company. That’s how most budgeting is done. But it results in budget inertia – not moving away from merely repeating the same things from before.

The tendency for a piece of information to stick in your mind and influence your interpretation of later information is called anchoring. This is a psychological bias you most likely aren’t aware is happening. Thus last year’s approach is very likely to stick in your mind and influence your approach to budgeting this year.

The budget discussion will often start with a comment something along the lines of “The budget last year [for this project or annual plan] was $x. Let’s see what it would cost to do this year.” This is the anchoring effect in action. It assumes last year’s activity will be largely repeated and is still needed, and it assumes the cost will be much the same as last time, perhaps a little bit more.

However, you can re-anchor the budget around something different, typically a vision of the future that has emerged from strategic planning at your organizational or departmental level.

Basically you go back to square one for the budget calculations and assumptions. It is called zero-based budgeting or zero-base budgeting. This technique is based on current needs rather than past expenditures. It involves reviewing the need from scratch to determine its priority rather than assuming the activity should be funded at all or in the same way because it was funded previously.

Zero-based budgeting makes great sense and in recent years has been consistently advocated by experts such as international management consultants McKinsey & Co in the firm’s newsletters. The technique is being increasingly used in business.

Zero-based budgeting is often used at the organizational level as an effective way to reduce costs and increase efficiencies, but it also creates a great opportunity for you to advocate for more funding for your communication activities, especially if you can demonstrate a good return on investment for those activities.

This approach can bring tighter discipline to public relations budgets where you are a new PR manager who may have inherited communication programs from previous years that may have questionable value. This happened to me one year when I started a new job in which the previous person, a former journalist, didn’t have much idea of strategic communication, and therefore limited most of his annual work on journalistic activities. In a way, this was liberating because I wasn’t restricted by past ideas, and so in effect I could start from a zero base for planning and budgeting.

With zero-based budgeting you can forget past assumptions and actions involved in a particular repeated activity and start from a clean slate. For instance, instead of assuming a traditional printed newsletter continues to be needed for an internal or external audience, you might decide to investigate if alternative forms of communication would be more effective. As a result, you might decide to investigate the latest types of digital communication for possibly replacing the newsletter or supplementing it.

A limitation to zero-based budgeting is the organizational planning and budget environment in which you are working. If you know senior management or client is anchored in last year’s assumptions, you will need to use your judgment on how much latitude you have to not just save costs with zero-based budgeting, but to propose ambitious initiatives.

About the Author

Kim Harrison is a recognized authority in the public relations field. His website, www.cuttingedgepr.com, provides a wealth of informative articles and resources on public relations techniques and management.

 

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