Sometimes, the benefits of a standalone cost reduction project are short-lived and a fundamental shift in culture and ways of working is required

In today’s highly competitive business environment organizations of every size are being pushed to continuously look for opportunities to increase the efficiency of their resources. In moments when a punctual intervention is needed, often a standalone cost reduction project can deliver the necessary outcome. However, the organization often finds this benefit is short-lived, and costs again start to rise after a period.

In the pursuit of more long-term and sustainable cost reduction efforts, many organizations have turned to Zero-Based Budgeting (ZBB). ZBB is a methodology that requires organizations to build their annual budget from zero each year. Each line of cost must be justified in order to receive funding and is not guaranteed simply based on the fact that it was included historically. This allows organizations to develop deep visibility of cost drivers and uncover areas of inefficient spending, allowing them to reinvest in initiatives that more directly support the company strategy or long-term goals (e.g. product development or sustainability).

Shifting to ZBB is not an easy task however; the process itself is time-consuming and complex when compared to traditional methods. It is a methodology that requires a shift in mindset and culture, as much as it requires processes and tools to achieve it. When implemented incorrectly it can lead to negative impacts on employee morale if cost center owners are too strict or the process could be deprioritized by package leaders if it begins to consume more time in their agenda than their own core activities.

We help companies implement and define governance to sustain a Zero-Based Budgeting methodology that is technically strong while promoting a positive efficiency mindset.

For organizations aiming to establish a system of ZBB, we help across a holistic journey from:

• Understanding how to apply the methodology.
  • The concepts of carrying out ZBB are very different from traditional budgeting methods. We help organizations first to understand that a ZBB process requires a matrixial relationship between ‘Package leaders’, who are responsible for one expense package (e.g. travel expenses), and Cost Centre Owners, who are responsible for the cost of an area (e.g. the trade marketing manager). Furthermore, the ZBB changes the responsibility of the Finance area from one which just builds to the budget, to the party responsible for running the process and challenging all expenditures.
• Putting in place the processes and governance to run an annual budget cycle
  • We design a budget and forecast process and governance attuned to your organizational needs and culture that makes clear the roles and responsibilities of each professional (Package Leaders, Area Leaders, Finance Area, etc.)
• Undertaking a budget cycle together to identify saving opportunities
  • We build with you next year’s budget defining all cost and expense lines and identifying the list of savings possible in this first cycle. We use our experience to perform technical challenges, questioning all levers to reduce costs and gain efficiency, whilst supporting stakeholders in building knowledge and understanding of the process.
  • In our projects we tailor the aggressiveness of the debates accordingly to the company culture and financial moment
• Embedding the change
  • We understand that a ZBB is more than just a project, it is a change in mindset. In order for this change to be successful, it is key to establish the new expected behaviors, communicate clearly the new roles of all functions and have the commitment of top management to oversee, reinforce the concept and solve inevitable clashes.
  • During our projects we make sure the company understands this challenge and is prepared with the correct mindset and expectations for the transformation ahead, removing consultancy dependency later down the line.

The benefits of a ZBB project go beyond the short-term cost reductions of an adjusted budget. It embeds in the company a new capability to challenge costs with a scarcity / critical mindset leading to:

• • A clear understanding of the company costs and rational for spend
  • Reduction of costs across the entire base (SG&A, operating, outsourcing, marketing, etc.)
  • Ability to reallocate inefficient spend towards initiatives better matched with the company strategy or long-term goals (e.g. product development or sustainability)
  • Greater ownership regarding company costs – the finance area will not be the only responsible party for the budget
  • Development of an efficiency mindset and cost management culture
  • Less one-off cost reduction projects which can be disruptive or ineffective
  • A stronger and more interdependent governance with clarity on timing, analytical depth, and roles for budget

Combining our experience of the methodology with your business knowledge, we can build together a Zero-Based Budget aligned with the company strategy, which brings both short-term savings and enhances the ongoing management of cost for the future.

We are convinced that our clients know their business better than anyone else. At the same time, we provide outside experience, proven methodology, cross-industry benchmarks, and a change management approach that can support our clients in transitioning to ZBB with accuracy and leadership involvement, without disrupting the business.

To build up a Zero-Based budget, we take a step by step approach that ensures we understand the company culture and business process; propose a tailored step solution grounded in reality that involves the leadership throughout the process; and that guarantees change management to create or reinforce the efficiency culture. This typically translates into 4 project phases: