ZBB refers to Zero Based Budgeting. It is a sensible trick used by companies to adjust their cost structure and boost their profitability. When an organization uses Zero Based Budgeting, it examines all its departmental functions and validates every penny in its budget. If this activity is effectively done, a lot of cash is unlocked and re-invested in other profit-generating activities. Budgets for the upcoming period are made around the actual needs for the period. So they can be lower or higher than the previous year’s budgets.
More about Zero Based Budgeting
First, the activity supports the implementation of strategic goals. It attaches these goals to certain operational areas of the company where costs could be classified and measured against current expectations and past results. Zero based budgeting is extremely detailed and may take a long time to be accomplished. Top managers can only review a few sections of an organization at a time. Although it is a prolonged task, ZBB reduces a company’s overheads, especially, in areas that receive direct revenues.
It’s not like cost based budgeting that requires trivial increases over the previous budgets. Zero Based Budgeting is all about the justification of old and new expenditures. The conventional cost based budgeting scrutinizes new expenditures only whereas Zero Based Budgeting begins from zero and then analyses old recurrent expenses and new ones. As well, this method results to costs and revenues validation. The success rate of this process relies on the managers’ understanding of how operational cost drivers work and visibility of costs.
How Zero Based Budgeting is implemented
The process calls for consistent improvements and amendments of planning models. If done traditionally, the process can be slow and lengthy. But if software for implementation and deployment is used, an otherwise time-consuming process can be shortened. None of the current solutions can do better that Anaplan software. Its design is based on versatile data architecture with integrated intelligence. Hence, Anaplan quickens Zero Based Budgeting implementation process and makes future adjustments extremely easy and fun. If you want to integrate this software with your GL (general ledger) accounts or business databases, the task can be over in a matter of days.
After the whole thing is completed, Zero Based Budgeting and other accounting methods will be simplified. As well, integration of Anaplan’s software with your accounts and databases would give entities access to crucial data. Additionally, users can start creating new business rules for creating a complete working model with several cost centers. Within a few weeks, their work can be over.
Why implement Zero Based Budgeting?
Several companies that have automated their Zero Based Budgeting initiatives have reduced the general costs of doing business, of course. They have managed to get rid of unproductive costs and recover the capital they spent on various investments. This accounting method has been here for more than four decades and so far it’s popularly embraced by CPG (Consumer Packaged Goods) firms and other businesses. Although it’s hard to make it work manually, Zero Based Budgeting is effective when done correctly. The best method to use is Anaplan software. Anaplan is one of the most renowned software developers that are helping businesses of all sizes and ages manage their businesses effectively.
If you think that this method of accounting is good for your business, don’t hesitate to introduce the Anaplan solution. It is the tool that will support your project from the start to the end. Besides, its solution leads to quick and easy deployment. Not only will the platform enable you to rapidly do recalculations, but also to view gross margin statements. You will also be able to probe deep into the data and use filtering and sorting tools to view instant outcomes. ZBB depends on what’s uncovered by scenario analysis and Anaplan’s software supports this too.