Using Outdated Budgeting Tools to Reduce Expenditure

Using Outdated Budgeting Tools to Reduce Expenditure

Most companies are finding it hard to break even due to the ever increasing operation costs. Rising interest rates, wages and increased dollar value put companies under pressure because such factors make it difficult to generate enough revenue. These challenges have motivated business leaders to seek the council of budgeting tools developed in as late as the 1970s. Companies are now adopting the zero-based budgeting (ZBB) programs because they promise to raise savings levels by billions of dollars. Consulting experts indicate that the use of zero-based budgeting is poised to rise in 2017.

What Does ZBB Entail?

ZBB is a financial approach that calls for company managers to account for each and every product in their budgets right from scratch. Unlike the current accounting programs that require a financial year to start from the previous budget, this method tries to give a fresh approach for the new budget. Using the ZBB method, organizations are expected to avoid relying on projections that are made based on previous budgets.

What's the Origin of ZBB?

The former US president Jimmy Carter engineered the use of ZBB in 1970s. Carter directed that these principles be applied in drafting the federal spending budget. Although this program was abandoned in 1981 when Ronald Reagan took power, organizations around the world started using it from around 2015. These organizations have continued to record high profit margins since the resurgence of ZBB.

Are There Any Setbacks?

Using these old budgeting tools may cause difficulties for organizations and managers because there is the risk of alienating business partners and employees. Analysts warn that trying too hard to cut down costs can have a negative impact on the growth of the company. Managers may be forced to reduce the amount set aside for reinvestment. Other competitors may also take advantage of this situation by increasing their spending to promote their products.

Date: 3 February 2017, 14:02 pm
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