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Sometimes to get things 100% right you have to start from zero. At least that’s the principle zero-based budgeting is based upon. Rather than simply justifying variances with regards to the previous year’s spending, a zero-based approach that an entirely new budget is created every year.
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While more accurate (as they’re based on the business’ present needs rather than past activity) zero-based budgets have traditionally more painstaking to develop. In some large organisations the sheer volume of information involved in creating a new budget has simply been too overwhelming to justify this approach.
We’ve seen a resurgence of zero-based budgeting in recent years. In a volatile market, companies must maintain an edge on the competition while ensuring their processes are as streamlined and cost-efficient as possible. This requires an enterprise-wide view of spending, and traditional incremental budgeting isn’t always fast or accurate enough to deliver this.
We’ve seen a resurgence of zero-based budgeting in recent years.
Another reason for this shift to zero-based budgeting is the rise of new finance technologies that greatly simplify and speed up the process. Perhaps above all else, cloud-based systems have been the driver behind this zero-budgeting renaissance. They support faster and more accurate reporting, improved transparency into processes across the business, and clearer ownership of budgeting responsibilities for users.
Perhaps above all else, cloud-based systems have been the driver behind this zero-budgeting renaissance.
The Kraft-Heinz Company, fifth largest food and beverage company in the world, is an exemplar of how cloud-based finance systems support strategic and effective zero-based budgeting. It implemented a global cost-management initiative across 1500 users in 40 countries and five time zones. With Oracle Planning and Budgeting Cloud Service, The Kraft-Heinz Company was able to automate budget consolidating and achieve real-time planning and budgeting across the business. The cloud system also made reporting much quicker, which in turn gave budget owners more control.
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The organisation also needed to integrate its budgeting infrastructure exceptionally fast following the merger between Kraft and Heinz, something the cloud was ideally suited to deliver. Julian Sherwin, Head of Zero Based Budgeting at The Kraft Heinz Company, tells it best: “When we merged with Kraft, we had to roll Oracle Planning and Budgeting Cloud Service out to more than 600 new users in less than 2 months to meet our budgeting timeframe. Oracle provided the flexibility and scalability we needed to achieve our goal.”
Zero-based budgeting is making a comeback in large organisations everywhere, and with good reason. It allows companies to be more cost-efficient, and to redirect the money they save into growth initiatives where appropriate. Perhaps most important, the technologies are now available to make it a viable alternative for companies big and small.