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Disrupt your budgets with Zero Based Budgeting

The COVID-19 outbreak has had an enormous impact on businesses across the world. As a result, forecasted earnings will have to be revised downwards. Therefore, it is imperative procurement and finance leaders rethink how they manage spending and revenues.

In a disruptive approach such as Zero-Based Budgeting, funds are allocated based on efficiency and functional necessity rather than budget history. In recent years, this method has gained more prominence, and today the number of large companies that employ ZBB has been increasing by 57% year-on-year since 2014.

Unlike conventional budgeting methods that roll over the previous year’s budget, Zero-Based Budgeting resets budgets to Zero. Every department’s budgets are scrutinized based on efficiency and necessity, challenging every expense and unlocking hidden cost-cutting potentials.

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There are no ‘sacred cows,’ nor ‘We have always done so.’

“ZBB is a disruptive way of challenging cost positions.
It sets new priorities and delivers immediate impact.”

Once cost transparency has been established, procurement and a cross-functional team commit to savings targets based on external and internal benchmarking. After targets have been signed-off, they are rigorously implemented. Zero Based Budgeting is a disruptive method that challenges the status quo and is an effective way of ‘shaking things up.’ With top management support, close collaboration between procurement, operational functions, and finance, Zero-Based Budgeting has proven successful in accelerating savings implementations and generating P&L impact. With this, Zero-based consumption culture with ZBB  will only become more prevalent.

In a recent example, one of our clients set a target of cutting its travel budget and reducing its environmental impact through the initiative ‘Green October.’ It involved restricting internal travel in October by encouraging employees to host meetings via video and approving travel only by exception. The top management led this initiative, and various communication channels helped to reinforce its importance internally. Not only did ‘Green October’ reduce the environmental footprint of our client, but it also cut travel costs by 20% in October.

Do you want to find out how to implement a Zero Based Budgeting approach at your organization?

Infographic: Typical savings for ZBB categories (%)

Are you planning extensive changes in your procurement department in the context of Zero based budgeting? We will support you from identifying cost transparency to a rigorous implementation to successfully execute this. At INVERTO, we have a proven track record of 10 to 30 percent savings in ZBB programmes across several industries.

 

Download here for typical savings ranges for ZBB categories.

INVERTO can setup your ZBB program and specifically support with:

Creation of cost transparency

Industry and category benchmarks

Category experts for challenger workshops

Business cases to unlock cost positions

Hands-on implementation of set targets

Do you want to find out how to implement a Zero Based Budgeting approach at your organization?

Your contact persons

Thibault Lecat

Managing Director INVERTO UK

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Rochelle Coutinho

Senior Project Manager

E-Mail
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