The disco hit, “The Only Way Is Up,” would be my choice for kicking off any conference on the subject of zero-based budgeting (ZBB). It is an uplifting song that everyone knows and the chorus perfectly sums up what ZBB is all about; namely, building the budget from the bottom up rather than extrapolating past-year trends. ZBB has been around longer than the song and longer than when former President Jimmy Carter promoted ZBB as the preferred way for preparing the state budget. Well, according to McKinsey & Company, ZBB is on the way up too—enjoying a renaissance as an effective way of keeping sales, general, and administrative (SG&A) expenses in check.
What’s so good about zero-based budgeting?
- ZBB encourages a structured discussion about costs
- ZBB makes people accountable
- ZBB forces managers to focus on cost drivers