Most CFOs think that good budgeting means cutting costs instead of looking at ways to stop wasteful spending, said Accenture’s Madeleine Joubert during Finance Indaba Africa, which was held at the Sandton Convention Centre on 13 and 14 October 2016. But zero-based budgeting means focusing on both top and bottom line, she explained. "It’s not about cutting costs, but redirecting the money.”
By Tiisetso Tlelima
Zero-based budgeting is about assessing your budget and finding ways to expose and eliminate unproductive expenses. Businesses need to know who spends how much on what and why. "Look at how you can do things differently. Just because you did it last year doesn't mean you should do it again," Madeleine said. "Clean up your act in business. Find the loop and close it."
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Madeleine highlighted the importance of knowing who owns the budget - and of encouraging and creating an environment that has collective ownership of the budget. More often than not financial officers are the ones that are responsible and accountable for the budget, but they may not necessarily know what's happening in each department.
Collective ownership of the budget is vital, because it means that other departments such as marketing can contribute information, for example about which products are cheapest. "They know the main players in their fields, they are experts in that category so it's essential that finance ropes them in when they are making budget decisions," says Madeleine.
In most companies, a lot of money is spent on travel (by sales and marketing people mostly), yet the responsibility for budget doesn't sit with them. "They need to be included in budget discussions, because they are usually excluded. By including them, they will be accountable if they overspend," explains Madeleine.
Madeleine added that control and monitoring mechanisms must be put in place. Monthly reviews to identify budget variances are needed so that the business can come up with ideas on how to do things better. Businesses need to know who is responsible for the budget for the different entities and implement action plans to resolve issues that may arise. If your price is too high, you need to know how high it is and how to reduce it.
Running a successful business depends on how you manage wasteful expenditure. Madeleine encouraged conference attendees to think of the business as their own and think carefully about how they would feel about wasteful spending if they had shares in the company.
In order for the loop to be closed, Madeleine suggested that there needs to be behavioural change in the company. "You need to be able to ask employees to think about how they are spending money and bring them in line," she said. "Doing things differently in business doesn't mean you should get rid of the good coffee, but making your employees aware of the small things they do in the budget which impact everyone."
