Zero-based budgeting (ZBB) is a budgeting strategy that entails creating a fresh budget from scratch each time, or from "zero," as opposed to beginning with the budget from the prior month and making adjustments as necessary. Theoretically, this forces decision-makers to continuously view the company through new lenses, free from the constraints of previous assumptions and targets.
ZBB in business permits the integration of high-level strategic goals into budgeting by tying them to specific organizational functional areas where spending may be first aggregated and then evaluated in comparison to past performance and present expectations.
Zero-based budgeting may be a rolling process finished over a number of years with managers or group leaders assessing a few functional areas at a time due to its attention to detail. By preventing broad increases or decreases to the budget from a previous period, zero-based budgeting can help save expenditures. Yet, it is a time-consuming process that requires significantly more time than conventional, cost-based planning.
ZBB use is anticipated to reduce globally, on average, from 13 percent to 10 percent, a real decline of 23 percent, according to Deloitte's inaugural Global cost management survey (Participants in the study were questioned about their usage of ZBB throughout the previous 24 months, as well as their intentions for the following 24 months).
Nonetheless, there are considerable regional differences in consumption trends. Zero-based budgeting usage is anticipated to fall significantly in both Latin America and the US (from 16 to 7 percent, a real decline of 56 percent) (from 15 percent to nine percent, a real decline of 40 percent). ZBB usage is anticipated to remain constant at 7% and 16%, respectively, across Europe and the Asia Pacific.
Further research on ZBB usage around the world includes:
- Globally, 41% of respondents who are using ZBB reported having targets higher than 20%.
- Yet, just 23% of respondents who were not engaged in ZBB reported pursuing the same aims.
Deloitte has created a digital strategy for businesses interested in implementing the zero-based budgeting method that can make the procedure quicker, simpler, and more efficient.
Important improvements include:
- With the aid of cognitive technologies. These technologies lessen the amount of manual processing, speeding up the ZBB process and assisting in finding untapped savings potential.
- Concentrating on key strategic drivers. This results in gains in the areas that matter most while lowering the ZBB's burden of managing change.
- Tackling the issue from both angles. By adding a top-down perspective to ZBB, the traditional bottom-up method's degree of detail is reduced, making ZBB simpler to implement.
One important conclusion is that even though the use of zero-based budgeting (ZBB) appears to be declining globally, some businesses may still find it useful. This is especially true if they are currently seeking a more structured approach to cost management, are working towards tactical improvements with cost savings targets of less than 10%, and are prepared to deal with the added implementation difficulties and complexity that come with ZBB by making the necessary investments in training, communication, and other areas.