The Zero-Based Budgeting Process
Having a zero-based budgeting process is important to a business. This allows you to determine where the money is being spent and to cut costs. It also helps you to ensure that your budget is being adhered to.
Identify areas of potential cost savings
Identify areas of potential cost savings during zero-based budgeting is a process of budgeting based on “zero base.” This means that each cycle of budgeting begins with no funding allocation at the beginning of the period. The process requires that every aspect of the budget be evaluated, justified and restructured. The goal is to ensure that the company is making cost-effective use of all resources.
The zero-based budgeting method started in the late 1960s by Pete Pyhrr, an account manager for Texas Instruments. Several companies have adopted the process as a way to reduce costs. These include General Motors, Signet Jewelers Ltd. and Guess? Inc.
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