For the annual budget, evolution is imminent


Tony Levy

Tony Levy is Anaplan’s Global Head of Finance Solutions. He has a passion for helping clients drive business results through the strategic application of corporate performance management software. He has more than 20 years of experience in the finance and supply chain software industry and has played multiple leadership roles in product strategy, product marketing, product management, business development, and industry marketing.

Financial professionals recently gathered at the annual Association for Financial Professionals (AFP) Treasury and Finance Conference in San Diego. The three-day conference featured sponsors and guest speakers from diverse backgrounds and industries, and attracted more than 6,000 attendees.

The conference sessions challenged the status quo by showing how companies can bid adieu to traditional budgeting processes and embrace increased cost discipline to help fund strategic growth initiatives and support better financial planning. Many discussions centered around several financial planning approaches—such as zero-based budgeting (ZBB) and rolling forecasts—as areas of interest for improving, restructuring, and refining inefficient FP&A processes.

In fact, the keynote address from Mike Rowe, host of the popular former TV series “Dirty Jobs,” set the conference tone by stating that “[In order to embrace change], finance professionals need to get comfortable with being uncomfortable.”

Are you down with ZBB?

At the conference and in recent press, the traditional budgeting process has been getting substantial airplay—and ZBB, a methodology that aligns company spend with strategic goals, is no exception. Additionally, with well-known organizations such as Kellogg Co., Verizon, and the Indianapolis Museum of Art turning to ZBB to increase cost discipline, there’s been a piqued interest in adoption across industries.

Heading up a popular session around this topic were speakers from the Indianapolis Museum of Art: Jeremiah Wise, Chief Financial Officer; Justin Grange, Assistant Director of Planning & Analysis; and Hannah Harris, Senior Financial Analyst. They discussed the modified approach their organization took to ZBB and the additional benefits, which included forward-looking resource planning, improved staff engagement, and increased collaboration.

How can ZBB improve and replace the traditional budget process? First, let’s take a look at traditional annual budgets: They are often produced by taking the previous year’s actuals and tacking on a few percentage points to help account for wage rises and inflation. Unfortunately, however, this kind of incremental budgeting can lead to inefficiencies and missed opportunities for greater cost savings.

In contrast, ZBB requires that organizations build their annual budget from the ground up every year. This helps justify that all components of the budget are cost effective and relevant, as well as drive improved savings. For many organizations, these cost savings can then be used to fund strategic initiatives that drive profitable growth.

Or is it time to eliminate budgets altogether?

Not a fan of ZBB? Not to worry—there was another intriguing opportunity presented that could encourage FP&A teams to throw traditional budgets out of the window. According to the presentation from Steve Player, North America Program Director for the Beyond Budgeting Round Table (BBRT), it could be time to replace budgets entirely.

Steve, along with Nevine White, Executive in Residence at BBRT, led a popular conference session, “Successfully Implementing Rolling Forecasts.” The session examined different companies that successfully eliminated their annual budgets, and instead now rely on rolling forecasts to steer business performance. The result is a more adaptive organization that is better equipped to deal with complexities and uncertainty in the modern world.

ZBB or not, traditional budgeting is fast becoming obsolete

Introducing different corporate budgeting approaches is not inherently new. However, the pressure to do so is new as companies look for additional ways to improve growth and cut costs. For some, a budgeting approach such as ZBB or rolling forecasts can allow them to cut costs, capitalize on growth opportunities, and get rid of bootless budgets.

Can’t get enough information about ZBB? Same. Hear more in-depth information about the approach and its benefits in this on-demand webinar with Ed Major and Ron Dimon from Deloitte, or download our recent white paper, “5 best practices for world-class zero-based budgeting.”

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The fundamentals of zero-based budgeting

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