Zero Based Budgeting (ZBB) is not a novel approach, it has existed since the 1960s and was developed in the United States. In recent years, the method has gained more prominence and today the number of large companies that employ ZBB has been increasing 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 functional necessity challenging every expense and unlocking hidden cost-cutting potential. There are no ‘sacred cows’, nor ‘We have always done so’.
Once cost transparency has been established, Procurement and a cross-functional team commit to savings target 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 implementation and generating P&L impact. With this, Zero-based consumption and culture with ZBB at its core will only become more prevalent.
In a recent example, one of our clients set a target of cutting its travel budget and therefore reduce their 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. This initiative was led by example from the top management and various channels of communication were used to reinforce its importance internally. Not only did ‘Green October’ reduce the environmental footprint of our client but also cut travel costs by 20% in October.
We at INVERTO have a proven track record of 10 to 30 percent savings in ZBB programmes across several 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
Would you like to find out more about INVERTO supporting you with your ZBB project? Please contact Lars-Peter Häfele or Rochelle Coutinho.