Zero-Based Budgeting for Nonprofits

I recently had the pleasure of debating with fellow students at the School of Philanthropy about the relative advantages and disadvantages of zero-based budgeting for nonprofit organizations. Over the last few years, zero-based budgeting has become very much in vogue again in the nonprofit and philanthropic sector. Like so many good things, however, is sometimes overused, misused, or extolled as having ridiculous magical properties. While I acknowledge the extraordinary value zero-based budgeting can have, it can also be a colossal waste of time for many nonprofits.

A tremendous benefit of zero-based budgeting for nonprofits is that it forces planners, leaders and managers to ask the tough questions about “business as usual.” When we’re honest, we all know that organizations tend to default toward self-perpetuation. That’s the silent plague in our sector. Zero-based budgeting forces us to question assumptions and tie spending to desired outcomes and anticipated program accomplishments. That’s a good thing!

But zero-based budgeting can also cause planners who think they know better to ignore valuable lessons learned from the trenches of program execution. I have seen zero-based budgeting introduced by a CFO who was completely out of touch with the rank and file within the program side of the organization. It became an exercise in his ego and candidly it was more of a gimmick to impress the board then anything that was practical or useful. So yes, I agree that it’s important to rethink the way we do things periodically, and to make sure the desired outcomes indicated by our vision and mission find their way directly into the anticipated outputs of our programs.

My favorite comment from our debate was the suggestion that perhaps zero-based budgeting could be institutionalized, but not every year – perhaps once every two, three or five years, depending on the organization’s size and culture. Such a balanced approach would make for more healthy, self-evaluating, ethical, impactful nonprofit organizations. That’s an idea I can get behind! And for you zero-based budgeting zealots out there – hey, it’s better than nothing.

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