Zero Based Budgeting is a procedure that can be used during the planning processes or at any other time to create visibility and awareness of your detailed cost structures. Thereby improvement activities can be identified to drive out “FAT” in your business. It can be applied to almost all cost budgets, typically to indirect fixed costs.
ZBB is not to be used as a single tool on its own to optimize your cost basis, but it is one of various tool sets to tackle specific cost areas.
If ZBB is used for top down push into a budget, which employees can hardly cope with, it becomes difficult to prevent big surprises throughout the year and enough buffer is to be planned at higher levels to equalize occurring gaps. There are many causes for programmed surprises. The most obvious is the lack of time, provided to budget holders, to work out hidden issues and are then forced to accept cuts.
In order to provide the time required for each single cost cutting project, and to ensure that sustainable savings are created, WR-ICON recommends to set up a global program to tackle a specific cost area. Ideally the ZBB concept is used here, as it can be applied and managed at the required global level. The program is to be planned properly with a number of elaborate targets and rolled out, adjusted to your organisation. When applied smartly, it is a powerful tool to continuously reduce your costs in targeted cost areas.
Individual budget holders or managers might want to use ZBB to improve their own cost base or for planning purpose. Remember: ZBB is not like rocket science – everyone can do it.
We recommend to not only use ZBB for planning processes, but moreover aim to implement it into the process of idea generation. This enables your team to anticipate the cost saving of each idea and allocate your resources most efficiently.