In the last couple of years, we have seen the business world turn upside down and organisations confronted with an ever-changing and dynamic environment. The traditional budgeting process is long obsolete. With most Organisations are not ready to abandon their traditional budgeting, Zero Based Budgeting is definitely a great way of improving and keeping the traditional budget relevant.

Members of the Middle East FP&A Board met digitally in November to explore the New Age of Zero Based Budgeting (ZBB).

Evolution of ZBB for FP&A

For Clara Hoon, International Finance Leader at Nielsen, ZBB is not just about cost. It’s a change in mindset and way of thinking about your business. It involves all lines of P&L, B/S and C/F. It is a business model and is worked on all year round not just once a year and most importantly brings agility to the organisation in a changing environment.

Figure 1

The key enablers of ZBB are Management Buy-In / Clear & Relevant Drivers / Creativity / Constant Review and most important is Transparency.

ZBB to Beyond Budgeting. Change in mindset - The Kraft Heinz Company case study

Akshat Khandelwal, CFO at The Kraft Heinz Company ME, goes one step further and explores the idea of how ZBB could be extended to Beyond Budgeting. For Kraft Heinz the key aspects of ZBB are:

Figure 2

The P&L is split into:

1. Simple Packages (fees, rentals, legal, services, tech, travel, utilities) – Minimise spend

2. Commercial, Complex and People Packages – Re-Invest efficiently into these.

These are supported by string routines, the annual budget, Monthly reviews and Savings Projects where ideas are shared and also benchmarked. The major goal is Reinvesting non-working spending into working spend!

ZBB in uncertain times

In Pharmanovia, ZBB played a key role during Covid! Mohamed El-Rouby (CFO, MEA) put into place a project looking at all levels of risks and the impact on the organisation and the budget.

Figure 3 

A checklist for each of these blocks was designed and the following questions were addressed:

• What are the risks?

• What country / Geography does it affect?

• What are the mitigation plans?

• What are the financial impacts and how does that affect our ZB budget?

This ensures even in Uncertain times, all the risks are mitigated and brought into the process. It is also imperative to have continuous review and amendment throughout the whole process.

ZBB Technology Enablers

Advance in Technology means today more than before, we can achieve all of this. For Andreas Simon, Regional Director MEA at Jedox, new software can help us achieve our goals with better ZBB in the following ways:

• Activity Breakdown & Analysis

• Line-Item budget level

• Driver Identification

• Fetch Driver, Statistical Data

• Driver Based Modelling and Real-time Reporting & Analysis

Figure 4

Extended Planning and Analysis (xP&A) adoption empowers the modern finance function to drive transformation also on Zero Based Budgeting. The new ways of working offer:

• Continuous, Real-time Planning & Forecasting  

• Granular Operational Models & Solutions 

• The platform for Strategic, Financial & Operational Planning 

• Driver-based Simulations, Scenario Planning 

• Augmented with Predictive Forecasting & ML 

Summary 

In conclusion, now more than ever, one should be adopting Zero-Based FP&A instead of traditional budgeting. Consider the 10 steps approach in implementation.

1. Is it ZBB or ZB FP&A? What is the purpose? Just cost management or improving agility and flexibility of the whole planning process?

2. Obtain sponsorship from the top

3. Prioritise items to be worked on and rank them

4. Interview key stakeholders – owners of high ranking decision packages / give ownership 

5. Identify key business Drivers

6. Create room for collaboration via logical routines

7. Ensure visibility and accountability at each step

8. Control, evaluate, educate continuously

9. Automation and adoption of xP&A

10. Plan from Zero and ditch last year's budget approach.

We would like to thank our global sponsor Jedox for great support with this Digital FP&A Board.