Zero-Based Budgeting is Needs-Based
It’s true that introducing ZBB requires a greater time-investment as you assess the needs of each department. You must review every line item and build a budget around a strategic allocation of funds- as opposed to a blanket-spending approach across all departments. It’s as simple as starting at zero.
Aligning Incentives using Zero-Based Budgeting
We’ve always suggested that using incentives aligns employees with your business goals. Zero-based budgeting does just that. Strategic cost management and collaboration among multiple departments fosters responsibility around spending. Involve department heads and management to dig in to the details of what costs yield the best results to run sustainable, accountable operations.
Related Read: By educating our team about the P&L and balance sheet we are building accountability and ownership and curating a culture for growth.
When entire management teams understand the balance sheet and P&L, and how to compute rates of return, it’s easier to support prioritized spending within each department. This education, combined with a common incentive for all departments, will help eliminate the practice of each department scrambling to use up a budget at year-end so that their budget isn’t reduced the following year. Instead, this collaborative effort will provide an opportunity to allocate funds to the most important area to help your company scale.
The transparency in collaborative budgeting prevents the threatened response that might be expected when cost-cutting. Better understanding and accountability around the P&L and setting agreed-upon targets helps align teams to drive towards the same goals.
Fact: ZBB is Growth-Oriented
ZBB is often seen as restrictive and costly due to its large initial time-commitment, but by mitigating risk and streamlining spending it creates opportunity for growth and future investment. By applying the two principles above: incentives and cost management, you are shaping your team and budget to support growth. Increased employee engagement plus increased margins equal a formula for scalability.