Why finance is re-examining the budget from the ground up

6 benefits of Zero based budgeting

In a world that orbits rapidly with change, Australian-born crooner Peter Allen might have sung it best: “Everything old is new again.” From a Magnum P.I. reboot to the renewed interest in machine-learning processes, there has been no shortage of redirected attention back to all-but-forgotten concepts.

The finance function is no stranger to the waves of resurgence: Zero-based budgeting (ZBB), a cost discipline that is by no means new, is one such concept experiencing newfound popularity in the business world. Companies such as Kraft Heinz, Unilever PLC, and Tesco PLC are some of the most recent businesses to sing its praises as an effective cost-saving initiative.

ZBB is a methodology that helps align company spending with strategic goals. It requires that organizations build their annual budgets from scratch. ZBB is often credited with measures to reduce costs; however, the approach doesn’t exclusively focus on savings and can help test assumptions, solve problems, and ensure that spending is aligned to the growth objectives of the organization. If performance does not meet expectations, ZBB can help businesses identify how to best course-correct for the months ahead.

Done right, ZBB can help businesses improve resource planning, increase employee engagement, and strengthen organizational collaboration.

Driving forward with an old classic

Today, unpredictability hovers around every corner, compounded by disruptive technologies, evolving business models, and rising globalization. This ever-increasing uncertainty has caused businesses to explore different ways to improve corporate growth and cut costs. The hunt for better business performance resulted in the re-examination of ZBB, an approach historically difficult to implement in traditional planning processes.

So, this begs the question: Given its problematic history, why the sudden change of heart?

Much of the about-face can be largely attributed to advancements in technology. Previous attempts to execute ZBB were simply too complex for spreadsheets and manual planning environments. Legacy planning systems added further complications with architectures that grappled to provide the flexibility needed to amend models.

By leveraging modeling platforms that aren’t limited to specific or expected financial line items, businesses can model any process required for their planning needs, and implement ZBB quickly and effectively for fast, agile, and dynamic budgeting cycles.

Six benefits of an effective ZBB approach

Organizations that use an effective approach to ZBB report a multitude of benefits. In addition to increased cost savings, here are six benefits that ZBB can provide:

  • Improved business margins through cost savings and alignment of spending to strategic objectives
  • Cost discipline that’s created and focused on operational execution to support business growth
  • Forward-looking resource plans that align to the projected future business state
  • Enhanced staff engagement in budgeting for impact and thinking about what “moves the needle”
  • Increased manager accountability for spending and that embeds a continuous culture of cost awareness
  • Conversation and collaboration among all managers and planners to work together toward a common goal of expense budgeting focused on meeting the needs of the business

For ZBB to be successful, it needs to be modeled and delivered through a capable and flexible planning solution. The Anaplan platform, a cloud-native solution, can enable, support, and execute effective ZBB methodologies even in today’s increasingly volatile business environments.

To learn more about the methodology of ZBB, download our recent paper, “The bottom line: Zero-based budgeting”.

Dive into ZBB

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