Advice and Information for Finance Professionals

How to strengthen the balance sheet with zero-based budgeting

Guest Author

By Wayne Heather, Executive Director EPM Product Marketing, Oracle

Looking back at the rosy economic picture of 2019, it’s hard to believe how much has changed so quickly. An unexpected global health crisis and resulting recession have driven organizations everywhere to rethink their business plans, focus on reducing costs, and keep their balance sheets as healthy as they can. This sudden, zealous attention to the bottom line has led to a resurgence of interest in zero-based budgeting (ZBB).

Fundamentally, ZBB proposes that instead of relying on historic spending to forecast budgets, organizations should start at zero and build budgets based solely on justified costs. You can see why this would be attractive in today’s climate of recession and cost-cutting.

ZBB is about long-term resiliency, which is paramount in today’s climate. In a volatile market, companies need an enterprise-wide view of investments, costs, and spending. Traditional, incremental budgeting isn’t always fast or accurate enough to deliver this. ZBB is also more detailed and granular than traditional budgeting, and therefore, more accurate.

But despite its benefits, zero-based budgets traditionally have been painstaking to develop. Until recently, ZBB work was done using disconnected spreadsheets—sometimes numbering in the thousands, which introduces massive risks. The spreadsheets were emailed from person to person, with everyone making their own adjustments—leading to mistakes, broken formulas, unnecessary delays, and general frustration with the process.

In some large organizations, the sheer volume of information involved in creating a new budget from scratch every year was too overwhelming to justify a ZBB approach.

Cloud EPM to the rescue

Fortunately, technology has evolved significantly since ZBB was first introduced decades ago. Spreadsheets are so 1970s. Enterprise performance management (EPM) applications offer deeper functionality, centralized data, and the ability to collaborate from a single source of truth. The planning and budgeting capabilities in Oracle Fusion Cloud EPM offer a fast, easy way to get started with zero-based budgeting.

ZBB was invented in a paper-based world, with no effective tools to gather the vast amount of data needed for accurate, zero-based budgeting decisions. Robust solutions like Oracle Cloud EPM have evolved to encompass:

  • Enterprise-wide visibility into financial and operational data
  • High-performance computing for fast data analysis with “what if” scenarios
  • Cross-line of business collaboration and process standardization
  • A single version of the budget across all functions

Oracle Cloud EPM supports ZBB with a proven, scalable solution. It gives you visibility into cost and profitability drivers, promotes accountability through all levels of the organization, and helps you make smarter investment decisions. Unique differentiators include the ability to:

  • Ramp up quickly to meet tight deadlines and spur fast ROI
  • Invest for profitable growth, with scenario modeling to predict the impact of potential budget changes
  • Achieve end-to-end visibility into profitability and cost drivers, helping you understand the fundamentals of your business 
  • Connect processes at scale, with all users and lines of business working from accurate, up-to-date finance and operations data

With Oracle Cloud EPM, lines of business and individual cost centers can participate in ZBB alongside finance managers and directors. Marketing managers, supply chain analysts, operations-center managers, or any other non-finance professional can be part of the ZBB decision-making process. You get same-time collaborative workflows without a lengthy back-end IT project. Your teams are freed up to think strategically, rather than spending days tracking down data and reconciling discrepancies.

Kraft Heinz wins big with ZBB

When food giants Heinz Co. and Kraft Foods were merged by 3G Capital, the ROI clock started ticking immediately. The merged companies had eight US$1+ billion legacy brands between them, and the pressure was on to find efficiencies and realize value, fast.

Getting there started with recognizing the need to replace an error-prone Microsoft Excel and Access-based budgeting solution—one that couldn’t effectively scale to 1,500 users in different countries. The company implemented Oracle Cloud EPM across each department worldwide. With the new solution in place, Kraft Heinz used ZBB to look more strategically at spending, both across the enterprise and within individual lines of business. The newly-merged company produced impressive results, with a record of near-industry-leading EBITDA margins.

ZBB isn’t just about cost-cutting. It’s also about reinvesting the savings. Done right, ZBB can be a strategic move that helps you make smarter investment decisions leading to profitable growth. Kraft Heinz continues to use ZBB for strategic spend management. Oracle Cloud EPM helps them to:

  • Scale processes as the company continues to grow
  • Plan and budget in real time, and automate budget consolidation in the cloud
  • Standardize global budgeting templates and connect them to their back-end financial management systems
  • Take advantage of a modern UI that’s easy to use for budget owners worldwide
  • Align everyone with their cost cutting culture (by increasing collaboration)

Allocate resources more effectively with ZBB

According to McKinsey & Co., a large European utility used ZBB to find savings of US$150 million from its baseline spend of about US$900 million. Savings like these can be reinvested in the right projects, spending more where the returns promise to be greater.

Harvard Business Review cites the example of a large consumer-goods company with a logistics cost gap due to labor issues. The company used ZBB to find opportunities to negotiate lower costs with freight providers. Another company uncovered an opportunity to save money through strategic adjustment of its commercial discounts—an area that wasn’t even on the CEO’s radar for improvement.

An Oracle customer in the food industry uses ZBB to maintain competitive operating margins; it built a cost-conscious culture, and then gave employees the tools and processes to make it easy to get on board. The new cost-conscious operating model was up and running in three months. In the first year, the company saved US$350 million. The company aims to save US$1 billion over three years.

The secrets of their success

How are Oracle customers achieving such great results? They take advantage of the capabilities built into Oracle Cloud EPM, such as:

  • Statistical and driver-based financial models created and owned by business managers
  • Real-time reporting and analytics that provide visibility into cost performance and controls
  • Drill-through capabilities for granular traceability into source data
  • Narrative reporting that combines system-of-record data with full context, for fact-based decisions at every level
  • Granular, configurable workflows to manage matrix-structured budget approvals and compliance

ZBB can be a powerful way to reallocate or eliminate costs to improve business performance. With the right tools, ZBB can be a flexible, agile process with the potential for big impact—especially in volatile economic times, when the bottom line matters more than ever.

Find out more about how Oracle Cloud EPM can help you strengthen your balance sheet.

Learn how to chart a path to growth with scenario planning and sign up for our Reallocate and Refocus with Zero-Based Budgeting demo session.

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