Zero-based budgeting is a repeatable process that organizations use to rigorously review every dollar in the annual budget, manage financial performance on a monthly basis, and build a culture of cost management among all employees. A world-class ZBB process is based on developing deep visibility into cost drivers and using that visibility to set aggressive yet credible budget targets.
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 two: Implementing ZBB requires cutting ‘to the bone’
Reality: The degree of cost reduction is based on the company’s top-down target
Although very little has been written recently about zero-based budgeting, the published content that exists often associates it with cutting costs to the bone, using any means necessary (for example, eliminating mini refrigerators in office kitchens to save electricity). While this may sometimes occur, it is by no means necessary. Simply put, the degree (and aggressiveness) of each company’s cost cutting reflects the size of its top-down savings target. For instance, in the most aggressive situations, we’ve seen 30 percent reduction targets in year one versus other situations that aim for 10 percent reduction targets with an agreement to reinvest half of that into more productive areas, therefore only taking 5 percent to the bottom line.
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 Global
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.
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