Why ZBB Now

Tom Trachtman, Senior Consultant

In the most recent Twelve Consulting Group blog post we outlined why zero-based-budgeting (ZBB) is a challenge. The idea of budgeting from the ground up, across an organization is daunting. Though ZBB may be laborious there is no better time than now to implement zero based budgeting. Why?

The scrutiny of public companies by investors is at an all time high.

Ever since the 2008 financial crisis there has been increasing pressure to return cash to shareholders. This scrutiny is exemplified by a different news story each day regarding investors taking an activist role in public companies. Activist investors can be a costly distraction to companies (It is estimated the P&G spent $35M in a 2016 proxy fight with activists WSJ), and the best way to keep investors at bay is an efficient cost structure enabling strong shareholder returns and visibility.  To that end, companies are constantly seeking how to better manage their costs and eliminate unproductive spend for which there is no better tool than zero based budgeting.

Your competition has implemented zero based budgeting and seen dramatic results.

Companies large and small have implemented zero based budgeting and are recognizing annual savings as a result. For example, it is estimated that Kraft Heinz is saving $280M annually through their ZBB initiative WSJ 2. No business wants to be the laggard of their industry. As more and more companies implement zero based budgeting, and reap the year over year cost savings, a traditional “annual inflation” budgeting process is not only an obsolete practice, but also detrimental to your success.  

New Technologies are eliminating the historical pains for zero-based budgeting.

The concept of zero based budgeting is intimidating, as it requires a large number of stakeholders navigating the organizational matrix etc. Recognizing these obstacles, leading technology companies, such as Anaplan, are making the process easier than ever before. Cloud based platforms can enable real time consolidation, eliminate off-line reconciliation and allow a wide user base to operate in the system concurrently.  The ZBB accelerator developed by Twelve Consulting Group leverages Anaplan’s cloud based platform to create a seamless and turnkey process for every budgeting cycle and tracking variances to actual spend throughout the year.

The time to implement zero based budgeting is now. To learn more about how Twelve Consulting Group and Anaplan can help you build a zero based budgeting tool in as little as 90 days, please contact Austin Pittman (Austin@twelvecg.com) or schedule time with our team at www.twelvecg.com.

Four Reasons Why ZBB is Hard (And Why Anaplan Can Help!)

Henry Raether, Consultant

In a mature organization, superfluous costs can easily hide from view, eroding both profits and opportunities for growth. Traditional budgeting involves applying a modest increase to last year’s budget and closing the books. At its worst, this practice leads departments to spend 100% of their budgets to avoid “losing” dollars.

In response, cost-conscious businesses - especially those in highly competitive, mature markets and low-margin industries - are increasingly turning to a new take on the decades-old practice of Zero Based Budgeting (ZBB) to manage costs more strategically. In contrast to traditional budgeting, which is focused on incremental spending, ZBB is part of a broad effort to reduce costs from the bottom and strategically reinvest the savings. Cloud-based planning technologies enable this “new ZBB” practice, which has demonstrated dramatic results and impressive cost savings.

But, it’s still really hard to do…

Kraft-Heinz, one of 3G Capital’s primary investment “projects,” recently began saving an estimated $280 million annually by infusing ZBB into their operating culture (WSJ). However, despite this and other success stories, cost cutting and ZBB remain difficult and often unpopular (many finance professionals still carry wounds from the burn-the-furniture campaigns of corporate past).

Yes, ZBB is hard, but new technologies are alleviating old pains, making the practice more feasible and less obtrusive than ever. Below, Twelve Consulting Group has compiled 4 critical challenges to implementing Zero-Based Budgeting and how technologies like Anaplan can help.

1.    Building an organization-wide budget from Zero – Starting from zero can be arduous and time consuming; but the exercise of understanding costs and what drives them from a unit volume and price basis can be well worth the upside. Such a herculean task as budgeting from zero, for many businesses, means resetting thousands of spreadsheets each time the “price X quantity” equations for constructing the budget are updated. Therefore, completing the budget can take many months and cause too many nights and weekends of additional work for finance departments.

a.     Anaplan eliminates the need for consolidation or 'spreadsheet resets.' As a cloud-based platform, logic is developed in one place and is applied across all users in real-time. This can save months of work and wasted productivity per year, and reduce the ‘morale drop’ consistent with historic ZBB practices.

2.    Sharing information across a huge user base – Budgeting at the ground level means involving employees across every region, department, and office – if operating in spreadsheets, this is a surefire recipe for critical errors. In fact, though about 90% of users think their spreadsheets are error-free, as many as 90% of spreadsheets contain critical errors (remember Fannie Mac?).

a.     Anaplan supports massive scale, allowing concurrent use along with dynamic, real-time editing, reporting, and error detection. Anaplan also eliminates the need for the saving, versioning, sending, and consolidating process most finance professionals perform in spreadsheets. Data is live, collaborative, and can be accessed from anywhere, all in the cloud.

3.    Facilitating conversations (backed by data) across an organization - How do you slice data across tens of cost types and tens or hundreds of organizations, such that any budget owner can make sense of her data? How can we facilitate the communication necessary in a matrixed accountability structure?

a.     Anaplan is multi-dimensional. This means that costs can be viewed from the lowest level of detail to the highest executive level in a single click. It also means that individuals accountable for 1) Budget centers and 2) cost types can view the same cost data from a different lens in real-time to ensure that all points of view are understood and backed by facts.

4.    Connected, Real-Time Forecasting – Now that you have a highly detailed budgeting process, how do you compare actuals, run forecasts, and execute what-if scenarios? Connected planning using big data can be a nightmare in traditional spreadsheets.

a.     Anaplan seamlessly connects many data sources to produce live reporting and forecasting. This can mean comparing the organization’s budget to monthly actuals, comparing actuals to targets, and understanding the impact of current expenditures to the annual forecast, all in real-time. This connectivity enables leaders to make better decisions, faster.

Anaplan's potential to drive transformation is still being discovered, and the tool is being adopted by progressive organizations around the world. As industries are rapidly disrupted and redefined, companies seeking to retain a competitive advantage will continue to seek out revolutionary solutions to old challenges.

For more information and to access our ZBB White Paper, join us for a live Webinar on July 19th: Fueling Growth with Driver-Based Budgeting! Register here.

To learn more about how Twelve Consulting Group and Anaplan can help you execute Zero-Based Budgeting at your organization, reach out to Austin Pittman (austin@twelvecg.com), or schedule 1–on-1 time with our team at www.TwelveCG.com.