There are five misconceptions about Zero-Based Budgeting that can
make financial advisers shy away from using this type of budgeting.
1. The idea that zero-based budgeting is just starting your budget from a zero sum.
The reality is that zero-based budgeting uses an approach that can
facilitate cost viability, cost governance, and cost accountability.
Using zero based budgeting correctly can lead to better cost management.
2. Using zero-based budgeting is cutting a budget to ribbons.
The reality is that the amount of budget cutting depends on what the
company/government body wants to do. This type of budget cutting also
depends on the bodies top-down savings target.
3. Zero-based budgeting can bog down a business and stop it from doing anything else.
The reality is that yes, introducing a new cost management culture
within a new business/government body can take some time, it does not
always have to create stops. Having a team to implement this type of
change can help make the transition easier.
4. Zero-based budgeting only focuses on Selling, General, and Administrative Costs (SG&A)
The reality is that this type of budgeting tool can be used in any
type of cost. The main purposes of zero based budgeting is
accountability, viability, aligned incentives, and a rigorous process
and all of these can be important to any type of costs.
5. Zero-based budgeting was not created for growth oriented companies.
The reality is that zero-based budgeting can be used at any
company/government body whether it is being used for cost saving or
growth. Zero-based budgeting is not a full slash and burn budgeting
technique it can be used in situations to provide strong visibility
within a body to create more success.
