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Zero based budgeting

Enabling finance to drive better decisions on portfolio and cost management

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The swift pace of change in today’s competitive business world is driving chief financial officers (CFOs) to uncover new ways to dramatically reduce waste, grow the top line, and sharpen their competitive edge. CFOs are rethinking their approach to budgeting and have discovered that zero based budgeting (ZBB) has made a big comeback over the past decade.

With traditional budgeting, an incremental percentage is applied to the current budget. Or, budget line items are carried over to next year’s budget with the assumption that it is business as usual. This method doesn’t require managers to re-examine what is needed for the following year or finance to identify where to allocate resources most efficiently. But with ZBB, managers build a budget from scratch without using the prior period’s budget as a baseline.

Incredible advances in technology and data and analytics (D&A) capabilities have alleviated the primary roadblock to ZBB adoption. Today’s powerful intelligent automation (IA) applications can enhance and streamline the complex work of analyzing data from multiple stakeholders, identifying spending patterns, highlighting key drivers of expenses, and allocating specific costs—all in a fraction of the time once required by manual processes and spreadsheets.

Not just cost savings

It’s critical to understand that while ZBB typically generates cost savings, it’s not just about cutting costs. Equally, if not more important, it’s an effective approach to shifting the mind-set of managers and planners and ensuring that an organization’s limited resources are spent in the right places and achieve the most efficient returns.

In addition, ZBB encourages greater cooperation among different functions and fosters a “business owner’s” perspective within stakeholders. Ideally, this persuades them to evaluate each expense as a strategic investment in the growth and sustainability of the company.

ZBB represents the next phase of a company’s budgeting and finance strategy. It offers finance organizations an opportunity to improve margins, realize benefits from acquisitions, allocate resources strategically, and have better insight into costs.

In this paper, explore four key elements for successful ZBB implementation.

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Zero based budgeting

Enabling finance to drive better decisions on portfolio and cost management

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Achinta Khairom
Principal, Advisory, Finance Transformation, KPMG LLP

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