Though zero based budgeting (ZBB) is hardly a new concept, many organizations are embracing this form of budgeting to support modern business needs.
Instead of following a reactive approach of starting with results from last year and building out the annual budget, ZBB calls for starting from zero for each new period.
This requires each business unit or team to justify their budget for the year. While this may seem to be risky in terms of opening the door to internal conflicts or political maneuverings fighting for dollars, when ZBB is deployed correctly and supported by universal buy-in, it can be a highly-effectively tool to help everyone in the organization win.
What is the Primary Benefit of Using Zero Based Budgeting?
If you’re familiar with the Lean methodology adopted by businesses to eliminate waste and become more efficient, zero-based budgeting is similarly valuable to help organizations eliminate financial waste in their budgets.
In traditional budgeting, business units or teams are accustomed to having X dollars available in a particular line item. Then, when the year is nearly complete, they’ll find ways to purchase items or services they likely do not need in order to justify having the same amount in next year’s budget.
ZBB flips this traditional approach around by forcing decision-makers to evaluate the necessity of every cost and justify having funds to support anticipated expenses in the next budget.
Teams must scrutinize their expenses and take a deep look into their spending history and habits to identify how they can remove wasteful spending and improve budget efficiency. It pushes your organization to be more diligent and intentional with each dollar that is spent.
While this approach may be challenging — especially when an organization’s business units or teams may have different operating models, peak revenue-generating periods, business needs, or other unique constraints — there is an opportunity for to achieve alignment throughout the organization.
Alignment can be achieved by stressing the importance of using funds efficiently to reduce costs and improve margins. When costs are reduced and margins are improved, the organization has access to more capital to make necessary investments or pursue new strategic objectives that were not reachable before.
These investments will then feed back into each business unit or team by introducing new capabilities or opportunities to achieve revenue growth. It’s a win for the organization and a win for each unit or team.
Utilize Software to the Transition to Zero Based Budgeting
If you believe your organization is ready to embrace ZBB, the ideal path forward is utilizing a corporate performance management (CPM) software solution to help manage the change and then eventually manage the ongoing process.
Organizations that rely on manual-entry Excel spreadsheets or outdated, legacy CPM solutions will struggle to make the transition to ZBB.
Effective and productive zero-based budgeting requires a modern, unified CPM platform that can pull data from multiple sources and organize the data in one platform for full visibility and decision-making. The answer is OneStream XF, delivered by OneStream Software.
OneStream XF is a robust CPM platform that simplifies the budgeting process for even the most complex organization. One of the key features, Extensible Dimensionality, provides the right level of financial detail for both corporate and line of business. This way, the budgeting needs of the overall organization and individual business units are supported.
This is the right path forward to achieve both universal buy-in for a leaner approach to budgeting and a win-win opportunity for the entire organization and individual business units to grow collectively.
Work with HollandParker for OneStream XF Migration
Our CPM consulting firm has a deep understanding of how to utilize OneStream XF for zero-based budgeting and how to optimize budgetary requirements for organizations.
As a Diamond OneStream Implementation partner, we are one of the leading OneStream implementation partners in the world. We work directly with organizations on migrating to the platform, specifically achieving positive budgeting results using OneStream XF.
If you have questions about the OneStream XF platform or migrating to a CPM platform that supports your organization’s budgeting needs, contact our team today for more information.