Where does the BBZ (Base Budget Zero) method come from?
The ZBB or Zero-Based Budgeting approach has been around since the 1960s.
An American accountant from Texas Instruments (Pete Pyhrr) came up with the idea before it was taken up and popularised in the public sector by the federal state government of Georgia.
This method is often applied by large companies when launching a new activity. It can also be easily implemented in small and medium-sized enterprises.
The principle of this method breaks all the usual codes in budget construction. No more "systematic and inflated" budget renewals based on previous budgets or on actual expenditure from previous years.
We all know the myth of an institution for which we have the deepest respect and which would run the vehicles to consume the fuel. The final objective being to spend the entire budget allocated to preserve it for the following year. This is certainly a myth!
However, with the BBZ, managers and leaders must ask themselves the right questions :
- What do I really need for my business?
- If I had just set up or bought this business, what would be the 'starter pack' I would need to put in place to make it work?
The aim is to questioning the appropriateness of each expenditure to give themselves more frequent opportunities to challenge them.
How do I go about setting up my BBZ?
The BBZ (zero-based budgeting) approach is an approach that forces teams to ask themselves the right questions in the context of a systematic and critical review of activities. It helps to identify sustainable sources of savings.
The aims of the BBZ are to achieve a rational reduction and effective operating costs of the support functions (production, commercial, administrative, etc.) at the time of drawing up your budget. You can consider building your budget in the form of expenses necessary for the accomplishment of defined missions.
Indeed, drawing up a budget according to the BBZ approach is based on a few analysis principles:
- No situation is a given The search for performance involves questioning the tasks performed and the way they are performed
- Justify any expenditure by a service renderedThe relevance of each cost is useful to avoid simply repeating them and "inflating" them out of habit.
- Think about the different ways of providing a service Outsourcing / integration, on-site travel / videoconferencing, teleworking / office, ...
- Thinking about the different levels of quality to provide a service Is this level of quality really what the customer expects? Are we not doing too much (over-quality)?
Zero Budget Base: advantages and disadvantages
Starting from scratch to establish an annual budget is the best choice to ensure that your expenditure is incurred where it is most needed. The BBZ approach is a crucial step because it forces you to be rigorous and flexible.
Indeed, it is ideally suited to unlocking opportunities, transforming habits and generating real and lasting improvements in all business activities and processes.
On the other hand, setting a BBZ to music is complex because it is a a key step in the transformation of your business. The will and commitment of management must be clear and shared. Each directorate or budget manager will have every reason in the world to justify each of its budget lines.
Combined with the principles of Lean management and continuous improvement, BBZ will allow you to win on all fronts. Combining BBZ and Lean management (see article Lean management) will provide a set of checks:
- Definition of objectives and commitment of the management
- Evaluation of risks and opportunities (see article "SWOT analysis - how does it work?)
- Adequacy of functions and improvement of business processes,
- Structuring of costs and processes by function,
- Identification of possible gains time, cost of supply, quality, ...
- Projecting a business strategy with a concrete and operational roadmap
Our advice: Conclusion
As you can see, the best way to implement a BBZ approach is to assume that you start from scratch. This is not so easy to do or to conceptualise. VYou can visit meet obstacles by the weight of habits, incomprehension, doubts, fear...
However, you need to follow through to get the benefits. Moreover, do not wait until the company is in difficulty to implement a BBZ. Because yes, piloting your company is like piloting a plane.
In the middle of a storm it is always more difficult to ask yourself the right questions about how to sail than when the weather is fine.
In conclusion, we advise you to take advantage of the moments when everything is going well to anticipate and change your habits and those of your employees.
Do you want to set up your BBZ? Do not hesitate to call on the consultants of our firm of business consultancy to help you.