Good Reasons to Start a Zero-Base Budgeting Now
GOOD REASONS TO START ZERO-BASE
Most business owners are faced with rising costs and operate under
an ever-increasing pressure to reduce costs and deliver savings.
There is a need for management tools that enable businesses to:
1. Manage costs effectively
2. Identify and respond to the underlying causes of costs, and
3. Predict the likely impact on the cost base of changes in the
With these objectives in mind, there is a need to review the extent
to which overhead costs have ?moved in the right direction, by
· what people do,
· who they do it for,
· why they do it,
· why they do it as often as they do, and
· whether it is relevant to the overall objectives of the business.
This is done through Zero-Base Budgeting (ZBB). The
traditional way of budgeting costs has been to take the previous
figures and add on extra funds to cover inflation. If business
owners want to carry out new activities, they add more money
to the budget to cover the cost of the new activities. The
proposed new activities would probably be carefully
investigated before approval, but the existing activities (and the
budget for them), would be approved without anyone taking a
really close look at them.
Zero-Based Budgeting (ZBB), literally meaning ?a technique to
build a cost budget from zero? is an alternate approach to
budgeting because it enables you to look critically at what your
business has been doing and what you would like it to do.
As a business owner you may decide, for example, that some
things you have done in the past could be done better and
less expensively, perhaps by buying a new piece of machinery
or by performing work in a different way. Alternatively, there
may be new activities you wish to carry out. Perhaps some
tasks are no longer appropriate to do at all.
ZBB gives you the opportunity to decide on priorities. That is,
what activities your business must carry out, in order to
deliver its basic objectives and what activities, although not
basic, are very important. And what activities are desirable
but not essential. Again the traditional way of budgeting has
seldom permitted existing activities to be examined this way.
No organisation has unlimited capital, so business owners have to
make choices about where the available money will be spent. ZBB
enables you to make fully informed choices.
Finally, ZBB helps keep costs down. To survive and prosper, business
owners must keep a close eye on costs and how these costs add
value to the business. This must be done on an ongoing basis, for
which ZBB will create a robust framework.
For more information to help you get started with your budget we
will also send you a copy of our ?Our Top Budget Tip Sheet? - Keep
your eyes on your inbox for this.
We have experts either in your location, or online that can help you
plan for your operational costs using proven tools and processes.
Call us to arrange
a meeting with
your local expert
on 1300 36 24 36.