Budget Zero-Based

The budget is zero-based (PBC) is an approach to financial planning and budget management in which it is required that each unit or department of an organization to justify its expenses from zero, without taking into account the budget of the previous year. Unlike other budgeting methods that can be from the spending levels for existing and making adjustments, the budget zero-based requires that each budget item to be evaluated and justified as if it were the first time is proposed.

The process of budget zero-based implies that each unit of an organization to examine and justify all your expenses, even those that can be considered as fixed costs or recurring. This approach seeks to eliminate the complacency of the budget and force those responsible for the decision making to rethink and prioritize its needs and costs way more critical.

The budget zero-based does not mean that all budget items are reduced to zero; rather, it means that each item is evaluated in terms of its necessity and value to the organization, and only allocated budget to activities that are considered essential and strategic.

This approach is often used as a tool to improve efficiency and reduce unnecessary costs, because it forces managers to justify every expense and allocate resources in a more strategic way. Although it can be a process more time consuming, it is believed that the budget, zero-based can lead to more informed decision making and a more efficient allocation of organizational resources.

Benefits

The implementation of the budget of zero-based (PBC) can offer several benefits to the organisations. Some of these benefits include:

Elimination of Unnecessary Costs.

By requiring each unit to justify all of your expenses from zero, the PBC helps to identify and eliminate costs that may have become obsolete or inefficient.

Greater Transparency and Accountability.

To require a detailed justification for each budget item, the PBC fosters transparency and accountability in the budget process. Managers should explain why each expense is necessary and how it contributes to the objectives of the organization.

Prioritization Strategic: The PBC requires managers to critically assess the priorities and allocate resources based on the strategic needs of the organization. This helps to align the resources with the strategic objectives.

Greater Efficiency in the Use of Resources.

To review all expenditures, the PBC facilitates the identification of opportunities to use resources more efficiently and effectively.

Adaptability to Changes: Given that the PBC starts from zero in each budget cycle, organizations can adapt more easily to changes in the business environment, technological or economic, as they are not linked to historic presuppositions.

Encourages Long-Term Planning: By forcing a comprehensive review of all activities and expenditures, the PBC fosters a long-term planning and careful consideration of the goals and long-term goals of the organization.

Encourages Innovation.

The question all budget items, the PBC can foster an environment in which we are constantly seeking ways to more efficient and innovative to perform the operations.

Improves Internal Communication.

The process of budget, zero-based can facilitate the communication and understanding between different departments and hierarchical levels of the organization, because everyone should be involved in the justification and review of budgets.

Although the budget zero-based has its advantages, it can also present challenges, as the intensity of the process and the need for active participation of all levels of the organization. Therefore, its successful implementation usually requires a significant commitment from the management and all the staff involved.

BIS SOLUCIONES helps companies to implement a comprehensive solution for planning and control of expenditure, with the support of IBM Planning Analytics with Watson that allows the finance office to collaborate in the development of budgets. This benefits both to the leaders of drivers, quantitative as managers of unit costs.

In addition, the system facilitates a daily monitoring of the reality compared with the budget, providing visibility to the variations steep costs and simplifying the follow-up of corrective actions in a timely manner.

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