Huron Consulting Group Managing Director Scott Leshinski explored zero-based budgeting (ZBB) and its evolution during his presentation to Argyle’s CFO membership at the 2018 Financial Leadership Forum: Strategy & Innovation in the Digital Era in Chicago on May 9. In his presentation, “Zero-Based Budgeting: Survival Strategy or Strategy for Success?” Leshinski examined the impact of ZBB on finance professionals, along with ZBB’s potential impact on companies in the years to come.
Budgeting can drive transformation, yet CFOs sometimes struggle to capitalize on opportunities to use a company’s budgeting process to foster growth and innovation. Oftentimes, CFOs follow a standard budgeting process and fail to collaborate with multiple departments across a business to develop an effective budget. With ZBB, however, CFOs now have the opportunity to work hand-in-hand with different business departments to foster transformation at all levels of a company.
ZBB involves the use of a “zero base,” and every function within a business is analyzed for its needs and costs. It empowers transformation, as it gives each department the opportunity to show how it provides value to a business. This helps CFOs effectively allocate funds and resources to each department and ensure that the company is optimizing its budget.
“When you look at how transformation activities in the business have evolved, they now go well beyond finance,” Leshinski noted. “[Transformation] now really involves pulling together different business functions and associated technologies.”
With ZBB, CFOs can give different business departments the ability to integrate meaningful changes. If a department can highlight how it will use funds and resources to a CFO, it may be able to obtain exactly what it needs to help a company achieve its goals.
“Every organization is going through some form of transformation,” Leshinski pointed out. “ZBB ultimately becomes the mechanism to fund the growth of a core business and inorganic growth areas of a business.”
Companies must be able to quickly adjust their budgets and strategies based on market demands and client expectations. Thanks to ZBB, CFOs can help a business allocate funds and resources toward business functions that drive value. This means CFOs can use ZBB to ensure a company can adapt to a fast-moving global marketplace and consistently keep pace with its rivals.
“ZBB is one of the biggest enablers that allows a company to shift its strategy,” Leshinski indicated.
Data management is problematic for many businesses, yet ZBB may help CFOs obtain unprecedented visibility into all of the data at their disposal. CFOs can use ZBB to get the data they need to make informed decisions. Plus, CFOs can implement data collection and analysis technologies that empower business departments to perform in-depth data analysis. These technologies may lead to transformation, as they enable business departments to understand exactly how they can increase the value they provide to a company.
“ZBB provides a process for better visibility into business costs,” Leshinski noted. “Technology enablement is a significant component [of ZBB] that is driving value for companies.”
Transitioning from a standard budgeting process to ZBB may prove to be a great decision for CFOs at companies of all sizes and across all industries. ZBB empowers CFOs to use rich data sources to produce accurate business forecasts and projections, which, in turn, enables CFOs to identify growth and revenue generation opportunities and establish priorities. In addition, ZBB eliminates the errors commonly associated with standard budgets.
“Most organizations operate under a traditional budgeting process that involves broad brushstrokes and a very macro-level view of costs and expenses within the business,” Leshinski stated. “But you’re perpetually growing off of arbitrary numbers.”
Perhaps best of all, ZBB provides CFOs with the flexibility to make instant budgetary changes as needed. It ensures a CFO can continuously monitor a business’ performance in relation to a company’s budget. By doing so, a CFO can gain the insights he or she needs to transform an ordinary business into an industry leader.
“ZBB extends the level of granularity and visibility [with budgeting],” Leshinski said. “It allows businesses to put cost packages into place … that provides a finer level of granularity, determine where people and resources are being pointed and do more of the right things.”