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- Mar 13, 2023
- 2 min read
Exposing the Myths (and Realities) of Zero-Based Budgeting - Part 3
Zero-based budgeting can drive significant and sustainable savings, but it is much more than simply building a budget from zero. World-class ZBB programs build a culture of cost management through unprecedented cost visibility, a unique governance model, accountability at all levels of the organization, aligned incentives, and a rigorous and routine process. ZBB frees up unproductive costs and allows those savings to be taken to the bottom line or redirected to more productive areas that will drive future growth.
In this series of blogs, we explore some misunderstandings and realties of ZBB as outlined by Shaun Callaghan, Kyle Hawke, and Carey Mignerey of McKinsey and Company.
Myth three: ZBB will overwhelm your business and prevent it from doing anything else.
Reality: Initial rollout of a new ZBB program can be led by a central team and completed in four to ten months.
Recently, one executive we met with said, “I simply cannot afford to ask the entire company to stop what they’re doing for the year to implement ZBB.” The idea that ZBB requires dedicated focus from every employee for a year or more is simply not true. While it takes time to embed a new cost-management culture into any organization, the setup and rollout of a new ZBB program has much more limited requirements.
During the initial setup, a central coordination team develops deep visibility into costs and sets detailed savings targets for the next budgeting cycle. That team also ensures that the company’s systems and processes are in place for the detailed reporting, governance, and performance management that a world-class ZBB requires. In our experience, this setup period could take anywhere from four to ten months and is primarily led by full-time support from finance and IT, with part-time involvement from profit-and-loss owners and cost-category owners across the company.
Organizations that are unsure about ZBB’s upside are well suited to pilot the process. There are many ways to build these pilots, each of which can be customized to meet the company’s objectives. One company, for instance, is piloting a ZBB rollout across its global finance function. This approach builds capabilities within the team that will help drive the program across the enterprise while having the added benefit of helping team members achieve their existing budget targets.
Read the full article here: https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/five-myths-and-realities-about-zero-based-budgeting
Ramesys is an all-in-one budgeting, forecasting and reporting platform, purpose-built for the mining industry, that offers complete cost visibility across the entire organisation.
Our goal is to make it easier for mining companies to achieve a transparent understanding of their cost performance, develop a cost-conscious culture and create a single source of truth that helps key stakeholders make better decisions, faster.