Zero-Based Budgeting
ZBB is a holistic methodology designed to fundamentally re-imagine the cost base, stimulate growth and boost performance.
What ZBB is:
An identification of the activities and drivers that are vital to the organisation strategy
A collective process to rethink about how to best deliver those activities and focus resources
A challenge of current ways of working
An approach that can be applied not only to in direct expenses (marketing, sales, organisation and operating model).
What ZBB is not:
A top-down budget cutting process
A merely cost control process
A process led and owned by finance and procurement
A one time exercise
Benefits
Now more than ever is the moment for change. In the current uncertain economic environment, every organisation is having to fundamentally rethink their business model to ensure financial sustainability and resilience. We are facing a time of significantly limited resources and leaders are forced to double down on cost management, ensure liquidity and scrutinise budgets.
Implementing a zero-based budgeting approach brings a unique set of benefits:
Better visibility and transparency on cost and cost drivers
Assist decision-making on allocation of resources
Greater cost control – reset cost base and structure with bottom-up resource allocation
Potential cost savings – reductions of >30% or higher over 2 years
Opportunity to reinvest spend in areas that matter the most
Adopts a new way of thinking – more than tackling new processes, policies, and systems, ZBB instils a new mindset and new behaviours
Drives a culture of budget ownership – ‘would I spend this if it was my money?’
Our Approach
The goal of ZBB is to challenge current spend patterns and ensure that every employee adopts an owner operator mindset towards spending.
We follow seven practical steps:
Vision - Articulate why you are initiating a ZBB program and what you want to achieve with it linking it to the company’s strategy
Transparency - Create full transparency with detailed baseline, known value drivers, and rigorous analysis of cost activities
Category ownership - Introduce dual-cost accountability to support decision making and enable employees to own, manage, and drive the program
Ambition and value targeting - Lock in business model choices, prioritise saving areas, and establish smart targets
Zero-based budget - Create a granular and holistic view from the bottom up, challenge the budget rigorously and incorporate targets
Control and monitor - Set clear mechanisms for tracking costs including how to address variances
Execution - Devise action plans and milestones. Implement initiatives
Opportunities are typically identified and validated through a series of three workshops by spend category e.g. travel, IT, marketing, utilities
Workshop 1: Visibility
Objectives
Share baseline data and spend breakdown
Discuss leading practices and ambition
Review and prioritise hypotheses
Inputs
Share baseline data and spend breakdown
Discuss leading practices and ambition
Review and prioritise hypotheses
Outputs
Prioritised hypotheses
Workshop 2: Quantification
Objectives
Discuss and agree scenarios
Agree on quantified savings
Select change initiatives required
Inputs
Quantified savings hypotheses with various scenarios
Outputs
Quantification agreed
Workshop 3: Implementation Plan
Objectives
Finalise implementation plans (clarify roles and activities)
Develop savings profile
Inputs
Quantified scenarios with supporting implementation plans
Outputs
Alignment on implementation plans and savings
Success Factors
There are eight success factors to keep in mind…
The executive team need to lead the way – effective change flows from the top, and this truth applies with full force to ZBB programs
It needs to considered as more than just another cost-cutting programme or tedious budgeting exercise
The accountability needs to be expanded to foster fresh perspectives – to optimise costs, it’s essential to break through organisational silos to get an enterprise-wide view of actual
A standardised approach with clear definitions has to be enforced globally and include consistent reports and routines
The decision making has to be prompt and fact-based – transparency lies at the heart of ZBB. It gives management a basis for making objective, better-informed decisions, rather than relying on gut instinct, politics, or sheer habit
ZBB should be embedded into the organisation’s systems, IT and processes – a successful ZBB program relies on the organisation embedding cost transparency in its systems and tools including cost categorisation
Incentives should be in place to reward the desired behaviour – organisations can foster a ZBB mindset and behaviour among employees through their performance management processes, KPIs and rewards and recognition programs
The right talent has to mobilise to drive the process – change programs, regardless of their specific features, require stalwart, dedicated people to carry them out. ZBB is no different