How to optimize costs with a transformative ZBB approach
In a context where efficiency is key to competitiveness, companies often face a recurring problem: budgets are built year after year based on historical figures, with incremental adjustments that perpetuate past inefficiencies and biases. Zero-based budgeting (ZBB) emerges as a methodology that challenges this inertia, making in-depth information visible and making decisions from a renewed perspective.
Unlike traditional approaches, ZBB forces organizations to question and justify each expense “from scratch,” eliminating assumptions and allowing budgets to be built more aligned with strategic objectives and current operational reality. In our experience, companies that implement ZBB achieve a 10% to 20% reduction in operating costs in the first cycle, while strengthening long-term financial discipline.
Key elements to successfully implement a ZBB program
Implementing ZBB goes beyond cutting costs. It requires structuring, clear governance, and a comprehensive approach that ensures opportunities are captured and sustained. These are the keys:
Structuring a solid program:
ZBB must be approached as a comprehensive efficiency program, including as many cost centers as possible. One-off interventions are not enough; a systemic vision that connects all levels of the organization is needed.
Robust governance:
The success of ZBB depends on clear governance, with defined roles and responsibilities. Package owners (owners of each expenditure package) and entity owners (owners of budget entities) play critical roles in formulating and justifying each line item.
Priority according to the maturity of the company:
Not all organizations are ready to address ZBB in its entirety. It is key to start by selecting cost centers and accounts that are most addressable, based on a company's maturity and cost management capability.
Steps to execute a high-impact ZBB process
Implementing ZBB requires methodological rigor and orderly execution. Our experience in efficiency projects shows that the following steps are key to achieving concrete results:
Top-down analysis:
Starting from cost drivers and industry benchmarks, a vision of the maximum savings potential is defined. This stage prepares the necessary information to challenge budget formulators.
Definition of capture targets and work focuses:
Savings and productivity goals are established, prioritizing the areas and accounts with the greatest potential.
Budget formulation:
The formulators must justify each cost line from scratch, proposing items aligned with the objectives and potential identified. This phase is key to translating concrete adjustments into the final budget.
Identification of enablers:
To capture opportunities, it is necessary to define organizational, process, and technological enablers. For example, simplifying critical processes or adjusting organizational roles and structures.
Capture roadmap:
A detailed roadmap is generated that prioritizes initiatives, sets deadlines, and assigns responsible parties to ensure that identified opportunities materialize into sustainable savings and improvements.
Key actions to reduce costs and transform your business
In ZBB, the focus is not just on “what to cut,” but on how to redesign the organization to make it more efficient. Key efficiency levers include:
Organizational redesign:
- Optimization of spans & layers (hierarchical levels and span of control).
- Alignment of salary bands
- Productivity improvement and allocation of key roles
Process redesign:
- Massive survey of processes
- Value Stream Mapping (VSM) optimization to eliminate waste and inefficiencies.
Cost transformation:
- Creation of robust control governance
- Implementation of Spend Control Towers to monitor spend in real-time
Sourcing Optimization:
- Creation of procurement teams
- Advanced category management to negotiate better terms with suppliers
For example, in a recent project with a utility company, we achieved a 14% savings in operating costs and a 4 percentage point increase in EBITDA in just 4 months, thanks to the implementation of ZBB and the transformation of key processes.
Conclusion: Why reinventing efficiency with ZBB is key to business success?
Zero-based budgeting is not just another budgeting exercise; it is transforming the way costs are managed and decisions are made. By challenging historical budgets, ZBB uncovers hidden opportunities, generating significant savings, and building a solid foundation for efficient and sustainable management.
At Summa, we have accompanied organizations from various industries in implementing ZBB programs that have reduced costs ad well as improved productivity, transparency, and strategic decision-making.
Is your company ready to reinvent its efficiency? The path begins with an informed and structured decision.
About the author
Nicolás Palma is a Director at SummaPartners and has over 12 years of experience in strategic consulting.