Zero-Based Budgeting in New York

September 19, 2019

By Ana Karpenko, FP&A AM at PGIM Private Capital

On September 19, 2019, New York welcomed the 6th FP&A Board conference at the Michael Page office in midtown Manhattan. Thirty senior FP&A professionals from Citco, KMPG, Eileen Fisher, Coty, Citibank, Clarins, QBE, BBDO, Siemens, Prudential Financial, NBC Universal, Verizon, IQVIA, BNY Mellon, Nestle, Entangled and others attended the event sponsored by SAP and Michael Page to discuss and share their experiences on Zero-Based Budgeting (ZBB).

Even though ZBB has been implemented for over 50 years, when asked about ZBB, usually 30% of finance professionals say they have not been exposed to this concept before. ZBB, which is a detail-oriented approach, sets the decision-makers to open each chapter of budgeting from the “zero base” — when every target function of the organization is analyzed for their needs from the ground up.

While some participants at the FP&A Board were new to this concept, many have been implementing ZBB at their companies for 1-3 years.

FP&A Board members heard of first-hand experiences where ZBB had a negative connotation associated with it due to its “cost-cutting” nature. Finance leaders shared that most of the time this process requires a delicate approach, sometimes framing this concept in more user-friendly terms. If applied properly, it can become one of the most powerful tools in transforming a company and driving value-added changes that will positively impact the whole organization. 

It is worth mentioning that ZBB is not only cost-related since this type of mindset can be incorporated for the analysis of the full P&L. When implementing it, it is advisable to approach ZBB with the startup mindset where not thinking strategically can become costly pretty fast. Moreover, technology and AI were touched upon as well since they help gather data for target analysis to get to the granular level often required by this approach. 

Decision-makers shared their experiences and advantages and roadblocks along the way of implementing ZBB at their companies. To share just a few of the points addressed:

Advantages of ZBB approach:

  • Cuts back on spending, eliminate waste
  • Looks at repetitive expenses with a strategic mindset
  • Efficiently reallocates resources 
  • Increases transparency and accountability
  • Forces you to think
  • Creates a sense of ownership
  • Is a collective exercise that involves a lot of business partnering
  • Develops a look from the point of value creation
  • Stellar tool for integrated planning

Challenges to consider:

  • Time from the entire organization
  • Requires cultural change
  • Sensitivity - everything is on the table
  • Managing a large volume of data
  • Educating non-finance people about the concepts

FP&A Board participants listened to two case studies from advertising and pharma industries, where senior FP&A professionals shared their real-life experiences in implementing a ZBB approach, their recommendations and lessons learnt.

The evening concluded with smaller group discussions on ZBB implementation from: a) a people point of view, b) technology and analytics and c) business process points of view. 
                  
The results of these three brainstorming activities were later presented to the whole group.

Conclusion

The underlying concept of ZBB is a simple one. You need to think about how you would answer the following question: If I am to make the decision today, would I still invest my $1 in this? Does this still add value? 

Finance decision-makers need to work on putting the hearts and minds of the people at their respective organizations in the right direction. Education is often needed to change the mindset that ZBB is not about cutting costs; instead, it is all about value creation since $1 saved today will be reinvested in the business. Finance leaders need to help business understand that. In the end, it all comes down to the owner’s mindset.

As the evening concluded, FP&A Board representatives asked the participants for their feedback and suggestions. “This is such a valuable venue for all of us to meet and share our experiences and to learn from each other, bouncing ideas and hearing feedback in a safe and engaging atmosphere” — was a repeated statement. 
                    
FP&A Board members also shared that they are looking forward to the next meeting in New York that is scheduled for March 2020.