Implementing Zero-Based Budgeting: The Requirements

A Culture Change and a Centralized System

The first post in this 3-post series – Implementing Zero-Based Budgeting: Benefits, Myths, and Goals – covers the benefits of zero-based budgeting. To summarize, it enables you to achieve long-term savings that result in sustainable growth and holds your financial analysts accountable for the cost figures they approve and how they are managing the overall budget. This allows more effective recognition of any unwanted costs and how you that money can be shifted into other growth areas within the company.

However, to reap the benefits of a zero-based budgeting program, a culture change is needed first at certain levels within the company. The goal is to eventually have the entire company complete this culture shift, but it is best to start small. Along with a change in culture, a centralized reporting system needs to be created as well to provide teams the ability to share real-time numbers with each other to achieve the goals of this new budgeting program.

Better Than a Quick Fix

What exactly is meant by a culture change? This means starting small and fostering this culture change in other departments starting with Finance. To be successful with this new program, other departments will eventually have to jump on board with this new budgeting approach. These departments will need to step up in analyzing their own costs and how they can save more without diminishing their capabilities.

For example, while financial analysts talk to the shop floor to see where costs can be reduced, the HR department should work with Finance to determine how it can become leaner. Moreover, the IT department should take the lead on negotiating with its vendors to find any areas that can be saved. These are just a few examples of how different departments can step up to the plate; implementing a successful zero-based budgeting program will requires team effort.

Changing the culture doesn’t happen overnight. Senior leaders should take the lead in fostering this change. To ensure that everyone is on the same page, managers need advocate the new approach within their respective departments.

Incentives also help teams to buy into this new budgeting approach.  Although incentives for growth metrics may already exist, additional incentives can effectively encourage staff to find ways to reduce costs for the metrics they manage.

Some examples of incentive metrics are the realized ROI based on the requested capital expenditure and the total cost saving dollars resulting from a zero-based budgeting program. For the former, this can mean moving to the Cloud to save money or reducing redundant tasks by introducing centralized software. For the latter, it can be exemplified by achieving a 10% cost reduction per phone.

Best Practice to Achieve Success

A crucial component of the success of a zero-based budgeting program is an officer who governs the entire process from start to finish. This individual (or team) should contain deep knowledge of the budgeting process. Naturally, s/he will not know the ins and outs of each department, so that is why s/he needs to be an ambassador to department leaders. The officer will also provide oversight to ensure that past bad habits of budgeting do not return to plague this new program. And lastly, s/he must be dedicated to the craft of continuous improvement which means seeking outside counsel when needed.

As mentioned earlier in the post, a culture change needs to be accompanied by a centralized reporting system. Alithya has helped clients implement Oracle Planning and Budgeting Cloud Service (PBCS) and Enterprise Planning and Budgeting Cloud Service (EPBCS) and overcome the deficiencies of Excel-based models. These models lose sight of what the true cost numbers are because past budgets are simple anchors of history rather than detailed breakdowns of cost. Moreover, these numbers become siloed within the vast library of Excel models. With Oracle PBCS or EPBCS, budgets can be highly surgical and help leaders in the company pinpoint reductions.

A centralized system allows the capture of all changes in a single location in real-time, and it provides insight into how effectively managers seek cost savings. This can be used as a key indicator to determine if their actions are in line with this new methodology.

Furthermore, centralization not only holds managers more accountable, but it also empowers them to create innovative cost-saving solutions. Driven by incentives, staff will burn with a clear purpose to find new ways to achieve sustainable growth for the company and be rewarded for hard work.

Recapping What It Takes to Achieve ZBB Success

The goal is to create a cost savings culture that allows more capital to be invested into growing parts of the company. To be successful, follow the best practices outlined, starting with a culture change within the company and giving your teams a centralized PBCS and EPBCS system to more clearly see all data points. The hard work does not stop here, though! The next post delves into setting up a zero-based budgeting system.

Automating Enterprise Planning with EPBCS: A Case Study Featuring Sims Metal Management

Enterprise Planning and Budgeting Cloud ServiceIn using Enterprise Planning & Budgeting Cloud Service (EPBCS) to support annual budgeting and forecasting processes, organizations are choosing solutions that allow them to leverage the financials, projects, capital and workforce business processes necessary to provide a driver-based solution that links expected intake to revenues and costs. In turn, they are able to more efficiently produce integrated income statements, balance sheets and cash flow statements.

Featuring Jim Clark of Sims Metal Management, Our Special Guest

 Our August 16, 2017 webinar, featuring Jim Clark, Group Manager of FP&A at Sims Metal Management, takes a detailed look at how one organization automated enterprise planning to streamline processes and produce better results.

Within a real-world scenario, this means that whether using EPBCS out of the box or as a “hybrid” of OOTB with customized extensions, companies like Sims are able to adjust sales forecasts—throughout the year and through sales cycles—to better match the actual costs and needs in areas such as raw materials and labor.

A Better Approach To Performance Management

Using this integrated approach to Performance Management, companies are, in effect, bringing actual performance numbers, on a monthly basis, into their models.

As a result, changes and adjustments can be fine-tuned and incorporated into the mix.  Forecasts can be based more on actual numbers and less on assumptions, thus leading to a balance sheet that matches projections. From a planning perspective, companies can be more nimble and, ultimately, create their models with greater accuracy.

Whether you are participating live or via a recording, this webinar will illustrate how organizations like Sims are leveraging EPBCS in ways that allow them to: 

  • Gain insight to increase efficiency and improve outcomes
  • Better understand how organizations like yours can make standardization and centralization a top priority
  • See how an integrated solution works not just in theory, but actually in practice
  • Follow the processes to results that include improved accuracy and increased efficiency across the enterprise

For More Information

No matter where your team or your organization is along your EPBCS journey, this webinar is certain to provide you with valuable insight and context that can help you to implement changes that lead to greater efficiency and a more streamlined forecasting process overall.

Register for our “Automating Enterprise Planning with EPBCS: A Case Study Featuring Sims Metal Management ” webinar:

Missed the webinar? View Recording Here.