Zero Based Budgeting and Why Now?

History of ZERO-BASED Budgeting

ZBB is five-decade old concept which was popularized by Pete Pyhrr when he was working as a young manager for Texas Instrument. In his words, “especially in times of economic problems, when you need to make reductions, or when you have significant and rapid technological change.”

Here we break the budget down to small categories and then decisions are made on the tradeoffs of what return of investment, what do we lose, and what do we gain with the investment. It is looking at the expenses at a deeper level to derive the cost management and performance management, we are thinking about the resource allocation. In the modern world, we can do what-if and scenario analysis on aligning the resources to different priorities and ensuring they still align with higher corporate strategy and vision.

Traversing in Turbulent Times

We help our clients thrive in VUCA (Volatile, Uncertain, Complex and Ambiguous) environment by empowering them with word-class performance management system with standardized business process, optimized and automated close, consolidation and advance narrative reporting. COVID 19 are unprecedented times and during these times we have witnessed a sudden spike in need of Zero-Based Budgeting. If needed, a solution which can work alongside with existing planning implementation, something which agile and can be up and running in a short span of time and yet still integrated with the existing solution.

Here are the reasons you may find zero-based budgeting and forecasting helpful.

Better Cost Management: When we are in volatile times, the first step to bring things back in control is to take action for things which are under our control in this case Operating expenses, by bringing transparency, cost category owners, governance, and incentives together, which enforces constant collaboration and rethinking ways and innovate ways to redefine spending levels.

Bringing Top-Down and Bottom-Up together: Comparing the high-level targets with bottom’s up recalculation of direct and indirect cost looking at the numbers as connected functions have the potential of saving a good chunk of the money.

Creating a Sustainable Cost Impact: It’s not just about reducing the cost, evaluating how these actions will result in long term impacts and identifying which of them are sustainable is the key to getting the maximum value out of zero-based budgeting.

Will it be applicable to my company? Zero-based budgeting can appear to be overwhelming but when its coupled with optimized processes and advance intelligent tools, it has the potential to yield beneficial results and this makes make a lot of sense during these times.

Cheers!

Rahul S.