StrategicZero-Based Budgeting

…a project proposal

The aim of Zero-Based Budgeting:1. Where and how can we most effectively deploy

people and resources?2. How much must we spend?

Why do it?

Bain & Company“cutting as much as 25% of spending on overhead and support functions, while boosting efficiency and competitiveness.”

BCG, Boston Consultancy Group“an aggressive differentiation of investment levels by brand and market segment… freed up as much as 20 percent of their advertising and promotion investment… focus spending where it will have the greatest impact.”

EY, Ernst & Young“major companies appears to have driven, and be still driving, very impressive increases in gross and net margin.”

McKinsey & Company

• “ZBB is especially useful for private-equity firms.

• … aligns well with the return-on-capital approach that the industry favors.

• … eliminate unproductive costs (often as much as 10 to 25 percent of SG&A in six months), allowing owners to reallocate capital to growth, through marketing, sales, and M&A.

• … can be rolled out across a portfolio of companies, ensuring aligned processes, controls, cadences, and incentives.

• … ZBB gives private owners the standard but flexible approach they want for perhaps the most essential corporate process: the allocation of capital.”

A.T. Kearney

“… pursues significant new efficiencies in contracting practices, "make versus buy" tradeoffs, demand reduction, requirement simplification, operational efficiency, applied analytics, rules and policies, and much more.

“It is music to finance’s ears when they hear that ZBB done right can achieve truly meaningful cost reductions across

• the company’s core operations,

• top-line items (commercial discounts, policies, and other trade investments),

• recurring costs (COGS, OPEX, and headcount)

• and non-recurring costs (CAPEX).”

How does it look like?

Note: Each block is called a “package”.

The Strategic ZBB process…

The following 8 steps have been tried, and seen as effective:

1. Strategy Statement – Know what you want and write it down.

2. Internal Communication – A compelling strategic story to kick-off is essential.

3. Budget Framework – A solid working framework, containing: the method, ranking criteria, and updates with CEO/CFO, the Board or supervisory committee.

4. Processing Stacked Budgets – This is where the intel gets collected.

5. Ranking – Bias is eliminated due to focus on most effective efforts.

6. Reporting – The packages, project findings, and a ranked budget.

7. Execution – The final prioritised budget is your Action Plan, easily followed-up by CEO, CFO, or the Board.

8. Embedding – Going beyond the ‘one-off’ project or cost reduction advantages.

It’s about how the business will move forward, and cooperatively achieve the established targets.

A ZBB project structure…

The Client: High/low-tech engineering company

Annual Opex and Capex: > €500 Million

Headcount: > 300 people

Small and large scale (complex) projects

Participation in international development programmes

Client specific maintenance & supply services

4 weeks of preparation

6 weeks of collecting, review and processing the packages

4 weeks of ranking

2 weeks of finalisation work

Duration

ZBB manual

Packages

Management Report

Prioritised budget

Deliverables

1 ‘hands-on’ project manager

1 external expert / facilitator

3 project members

(None full-time)

Project Team

…a ZBB project proposal

ObjectiveFacilitate in the execution of a complete ‘one-off’ Zero-Based Budgeting project as an independent external advisor. Zero-Based Budgeting is a method to reallocate company resources and focus efforts to achieve its ambitions most effectively.

Possible advantagesa) Reduction of spendb) Reallocation of resources to increase revenues, ROI, or other investmentsc) Identification of alternatives, opportunities, and (hidden) operational risksd) Provides strategic choice and a strategic ‘roadmap’ e) Increased understanding at the topf) And effectively giving purpose to each activity

Deliverables (5 in total)a) With the client establish (1) the project plan (situation/objective/goal/solution,

costs, conditions, benefits, project management).b) With the project team prepare (2) a ZBB manual, the reviewed (3) Packages, and

(4) a Prioritised budget.c) With the project lead (co-)write (5) the Management Report of project findings.

Fee (Budget)Daily rate, plus performance-fee. (On average: 2 days/week.) This excludes international Travel & Expenses.

OptionalThe role of independent Project Manager (and ‘champion’) can be assumed under special terms and conditions.

What others say about Richard:

“He succeeded in an excellent way is to dispel the suspicion and persuade managers to look in a different way on the effectiveness of their own work process. This is undoubtedly his greatest contribution to the success of ZBB.”

“Particularly valuable were his contributions in team meetings. These were not just about the progress and method, but also on how to handle interventions.”

“Richard looks critically at processes and procedures and has an ongoing drive to improve the effectiveness and efficiency. He is able to add in complex and especially strategic issues other types not obvious, unorthodox insights. He thinks forward looking and beyond existing frameworks, yet can also translate this well into practice.”

“Rational and analytical, he can quickly master complex subjects, as well as make company-specific situation his own. He will surely be of added value for organizations that want to solve integral several or multi-disciplinary issues.”

For more information:Richard ReinderhoffFreelance (registered at kvk.nl)the Netherlands

mobile: +31-6-4285.2424email: reinderhoff@yahoo.co.ukL-In: www.linkedin.com/in/reinderhoff

StrategicZero-Based Budgeting

…be better, faster, stronger