If you don't reduce your budget next year, what does "save that money" mean to a department in a company? If this year I have 105% of last year's budget (because they always go up), what am I supposed to do with the 20% surplus from last year? Most companies wouldn't even have a place in your cost center to track a surplus, it's such a foreign concept.

Zero based budgeting is one answer to the moral hazards of either over or under-estimating your budget on purpose. If each year you start with a blank spreadsheet and then add (with justification) expenses for the year, it avoids some of the pitfalls. Not a panacea however.

https://en.wikipedia.org/wiki/Zero-based_budgeting#Advantage...