Timestamp Captions 00:01 – 00:05 Hi there, I’m Zaf Kamar and I’m back with another episode 00:05 – 00:08 of our series How to FP&AI. In today’s video, I’ll be 00:08 – 00:12 talking about Tactical Zero-based budgeting (ZBB) and forecasting. 00:12 – 00:15 ZBB is a planning philosophy that can significantly curtail 00:15 – 00:19 spending in low profitability business segments, but can 00:19 – 00:22 just as easily take away momentum of high performing units 00:22 – 00:26 as well. Rather than full scale thermonuclear ZBB, 00:26 – 00:29 Tactical ZBB allows you to manage expenses down in areas that need it 00:29 – 00:33 while avoiding collateral damage to your cash cows. 00:33 – 00:36 Let’s get started and 1st we’ll talk a little bit about ZBB 00:36 – 00:39 Zero-Based Budgeting is a management philosophy that says 00:39 – 00:42 rather than take all of your expenses for granted from last 00:42 – 00:46 year, you have to re justify all expenses that go into your 00:46 – 00:49 budget. It’s a more time consuming process than a more 00:49 – 00:52 standard BAU plus delta and typically involves many more 00:52 – 00:55 iterations as budget justifications are needed on a line 00:55 – 00:58 item by line item basis. However, it can be a very 00:58 – 01:01 effective way to lower your expenses and get rid of expense 01:01 – 01:02 inertia. 01:02 – 01:05 The downside here is that it tends to eliminate much of 01:05 – 01:08 your non essential spent While ultimately frivolous. Things 01:08 – 01:11 like the in-house Friday bartender company Iowaska Retreats 01:11 – 01:14 and holiday party at The Four Seasons may get paired down, 01:14 – 01:17 so too might budgets around business development to listen 01:17 – 01:20 and learn from your customers, travel to industry 01:20 – 01:22 conferences where you may meet your peers and culture 01:22 – 01:25 building activities for team morale. 01:25 – 01:28 The hypothesis here is that if you remove nonessential 01:28 – 01:31 spend from business units that are performing excellently, 01:31 – 01:34 you may be inadvertently tempering their motivation and may 01:34 – 01:37 end up impacting their top line performance in the longer 01:37 – 01:39 term. 01:39 – 01:42 So to solve that and turning back to the application on 01:42 – 01:45 screen in FPNA, I, we give corporate Finance the ability to 01:45 – 01:48 tactically apply ZB in this screen we talked about in the 01:48 – 01:51 previous video. Here’s where we roll forward our current 01:51 – 01:54 forecast to next year’s plan. As a corporate Finance super 01:54 – 01:57 user, I have the ability first and foremost to set a 01:57 – 02:00 threshold. This threshold will flag all business units and 02:00 – 02:03 departments that have either missed their revenue target by 02:03 – 02:06 more than this percentage or have overspent by more than 02:06 – 02:09 this percentage I can then tactically indicate. 02:09 – 02:11 Which business segments and which departments I want to 02:11 – 02:13 apply ZBB to? 02:13 – 02:15 If we can see here this particular legal entity, I wanna 02:15 – 02:18 say, OK, let’s go ahead and zero base them and that will 02:18 – 02:21 apply for all of the departments underneath that particular 02:21 – 02:22 entity. 02:22 – 02:25 Or I can play this a little bit more selectively and for 02:25 – 02:27 example, for this entity I see that there are two 02:27 – 02:30 departments that have exceeded the threshold and I will go 02:30 – 02:33 ahead and flag those two zero base. 02:33 – 02:37 Now, once I roll forward my scenario and my roll forward my 02:37 – 02:40 current forecast to my budget, let’s take a look at what 02:40 – 02:41 that looks like. 02:41 – 02:44 We’re here on the operating expense planning screen and 02:44 – 02:47 what I’ll take a look at first is taking a look at a 02:47 – 02:50 department that has been preceded and has been allowed to 02:50 – 02:53 have a non zero based budget and then another department 02:53 – 02:56 that will have to do 0 based budgeting. As I Scroll down to 02:56 – 02:59 my input section, what I can see is that my scenario has 02:59 – 03:02 been rolled forward here for the procurement department and 03:02 – 03:05 I can see that for all of the expenses that I have from 03:05 – 03:08 current year, these have all been rolled forward into my 03:08 – 03:11 plan. Whereas if I change this view to my quality assurance 03:11 – 03:12 department. 03:12 – 03:14 This is not going to show me a budget that is completely 03:14 – 03:17 devoid of any information and it is blank and I will have 03:17 – 03:20 to re justify all of my expenses. This functionality 03:20 – 03:23 offered by FP&AI is designed to give you more nuanced 03:23 – 03:26 control over your budgeting process. For business segments 03:26 – 03:29 that perform very well, we allow you the ability to allow 03:29 – 03:32 them to continue the momentum and for business units that 03:32 – 03:35 are suffering a little bit from a profitability perspective, 03:35 – 03:38 applying ZBB to be able to help them control and manage 03:38 – 03:41 their expenses down and increase profitability maybe what 03:41 – 03:42 the doctor would. 03:42 – 03:46 Thanks, and I’ll see you in the next video.
