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 Kelly Phillips (firstname.lastname@example.org), or schedule 1–on-1 time with our team at www.TwelveCG.com.