1. UNDERSTAND WHAT YOU ARE SPENDING NOW

1. Understand what you are spending now

Step 1 is to establish the facts - how much each department is spending now, on what, with which suppliers, for what purposes. You can’t do a Zero Base exercise without this information. Yet strangely enough, many companies can only partly answer these questions. Their accounting systems don’t break down costs in enough detail. You need more analysis to make your spending patterns visible and transparent.

2. Question everything you are doing now

1.1. Make all your costs visible

3. Decide what you want to change

4. Implement the changes

There are two possible sources you can use to begin establishing cost visibility: actual past results or your current budget for the year ahead.

5. Monitor to make sure it all happens

If you have a budget prepared over the past few months – pre or post lockdown – it will give you an insight into the organisation’s proposed spending at that time. If your budget isn’t in enough detail to work with, get budget owners to rework their budgets to the level of detail you need.

And while all this is going on, consult and communicate widely.

If you don’t have a budget, you need to build a data base of the past 12 months actual spending, by department and cost centre. It's backwards-looking but does give you a base to start with. You will need to spend time consolidating and cleaning data so that it's meaningful and actionable.

John Stretch

Integrity and consistency is paramount

The data is housed in a financial model. You can visualise a matrix of numbers – like a spreadsheet – with the departments and cost centres on one axis and the cost categories on the other, combining to give you the total actual or budget spending. As the project progresses, you will create an identical matrix, this time containing the new zero-base budget, then compare the two to establish the savings.

Smaller companies can do the exercise in Excel. Larger companies will need more sophisticated software.

You need to clean your data before you can work with it. Clever people figure out how to work the accounting system to hide their costs or charge them to other departments.

Investigate “Miscellaneous” or “General expenses” accounts with significant spend in them, and be alert for bad labelling - where the name of the account is not reflective of the costs in it.

The account coding may be inconsistent between departments and branches. For example, is the cost of an airfare to attend a training course charged to “training” or “travel”?

Also watch out for costs which are expensed in the system but are in fact prepayments, deposits, or inventory items. .

1.3. The level of detail

Accounting systems, even with drilldown capacity, do not reveal where, how, who, or why money is being spent. Costs sitting in buckets called Travel, Professional services, Training, Entertainment, Public Relations, need to be analysed down to individuals within each department, to identify the activities driving the expenditure.

1.4. How long does it take?

As long as you need to establish the truth. In every department and cost centre, and for every cost category (stationery, travel, training, maintenance, for example), you want to know

• Who controls the expenditure?

• Where is the money spent, on what goods or services, and who the major suppliers are?

• The reason for the spending

• The activities or events or cost drivers that create the need for spending.

Visibility is not just about financial information. The underlying drivers –the events and decisions that create and cause costs - are easier to understand and influence. For example, for travel, you should understand how many trips your organization takes, for what purpose and to which destinations..

For its recent ZBB project, pharmacy chain Walgreens set aside 16 weeks to assess its global cost base. “At the end of that 16 weeks, we will have enormous transparency and granularity, we will know who spends what on what. The ZBB team will develop deep visibility into costs and set detailed savings targets for the next budgeting cycle.”