“
Agenda for today
The Objective of ZBB
The Payoff
1
2
3 ZBB vs. Traditional Cost Cutting
4 Deloitte’s Approach to ZBB
5 Key Takeaways & Questions
Ed Majors
Principal
Deloitte Consulting, LLP
emajors@deloitte.com
Ron Dimon
Managing Director
Deloitte Consulting, LLP
rdimon@deloitte.com

Traditional
Models of
Expense
Management
Companies have tried many approaches
to budgeting and managing expenses
Budgets are developed by
function, but relatively
arbitrary reductions are
spread across all functions to
meet a budget target.
• For example, a set of final
budget “adjustments” that
reduce all proposed budgets by
10% or a similar amount
• Tends to encourage
“sandbagging,” or artificially
increasing funding requests to
anticipate eventual reduction
Budget guidance allows
overhead budgets to increase
by some set percentage over
prior year.
• Tends to “embed” a certain cost
structure regardless of strategic
value
• Some companies (e.g. a large
fast food chain) regard this as a
“leading practice” since it
minimizes effort during the
budget process
One-off “strategic cost
reduction” program that
drives significant reductions
in overhead costs.
• Requires significant effort and
can be traumatic to an
organization
• Can reduce overall cost base but
not necessarily change
budgeting behavior
PERCENTAGE GROWTH “PEANUT-BUTTERED” REDUCTIONS
ENTERPRISE
REDUCTION PROGRAM
$
Time
Annual increases on
embedded cost base
$
Time
Arbitrary reduction of
requested budgets
$
Time
Significant initial reduction
but similar trend

ZBB - Aligning funding with program efficiency and necessity
rather than history
Budgets are not
connected to prior year
spending
• Prevents “embedding”
of existing spend in the
cost base
• Allows spending levels
to be set based on
necessary activities of
a function, rather than
historical trends
• Requires more work to
understand activities and
cost structure
Cuts are not evenly
applied across the
budget
• Eliminates common
“sandbagging”
practices in budgeting
process
• Allows for more
strategic allocation of
planned spend
• Requires more work to
analyze and prioritize
Budgets are tied to
specific activities and
level of service
• Better aligns spending
targets with required
activities of a function
• Replaces “do more with
less” with “do the right
things with the right
amount”
• Requires fairly detailed
knowledge of
departmental activities
Funding is targeted to
activities that align
with strategy
• Allows for better
alignment of
expenditure with
overall strategy and
departmental missions
• Can reduce incidence of
“we’ve always done
that”
• Prioritizing activities
across various functions
can be challenging

Copyright © 2016 Deloitte Development LLC. All rights reserved.. Analytics & Information Management / 5
Getting it right has a payoff

Getting it right has a payoff
We looked at the last 4 years of
performance data for a large
retailer/department store
(over $10B annual revenue)
and its nearest 9 competitors.
(Total community includes Target,
T.J. Maxx, Ross, Kohl’s, Bed Bath &
Beyond, Nordstrom and others)

Many organizations are considering adopting a “zero-based”
approach to their planning processes
TRADITIONAL COST
CUTTING
ZERO BASED
APPROACH
Justifying what to remove Justifying what to keep
Focusing scope on narrower set of costs or cost
reduction tools
Leaving no stone unturned by examining every
cost area for the broadest set of cost reduction
tools
Improving how activities should be performed
(efficiency and effectiveness)
Considering both what Activities should be
performed (i.e., doing less) and how they
should be performed
Created focused Initiative Planning and
Execution
Developing detailed and comprehensive
initiative design, planning and execution

So it’s not an “either/or” — it may be an “and”
TRADITIONAL BUDGET
PROCESS
ZERO BASED
APPROACH
Zero Based Budgeting (ZBB)
– A budgeting process that
allocates funding based on
program efficiency and
necessity rather than
budget history.
Based on our experience,
ZBB is widely adopted in
public sector and not for
profit organizations.
However, it is not widely
used across the private
sector, and if adopted is
generally conducted on a
select function basis.
High correlation to prior year
expenditure levels
Primary organizational focus is
on the cost center
Implicit assumption of “steady-
state” operations
Approved spending levels are
unrelated to prior year
Primary budgeting focus is on
the “decision package” or
specific service/activity
Explicit challenge to current
service levels and activities

We have developed an approach to zero-based budgeting that
incorporates five key pillars
1. Strategic Intent
2. Operating Model / Org Design
3. Governance
4. People, Processes, and Systems
5. Performance Management
AlignedandLinked
• More strategic, with focus on future direction of the
organization and immediate priorities
• Incorporates top-down targets / expectations into the
process to help define priorities
• Performed on a 3 year cycle basis as strategic
priorities should not change
• Looks at
expense line-
by-line
• Budgets are
built bottom-
up…rarely top-
down targets
• Cycle is
repeated
annually
Determine
business need
for upcoming
period
Review current
costs – line by
line – and assess
each in terms of
ability to meet
business need
Communicate
new budget
and allocate
resources
Rollup costs to
determine
group budget
and qualitative
savings
Build bottom-
up budget –
include only
the costs
necessary to
meet business
OUR APPROACH TO ZBB
TRADITIONAL ZBB APPROACH

This framework has been used to enable
sustainable operational change
1. Strategic Intent
2. Operating Model / Org Design
3. Governance
4. People, Processes, and Systems
5. Performance Management
Key questions to be addressed
 What is the company’s or division’s strategic intent and priorities?
 Who are the key stakeholders, what are their expectations, and how should capabilities be aligned to
meet them?
 What operating model best aligns with the strategic intent and priorities?
 What is the optimal organization structure to support the operating model?
 What is the required cost structure?
 What governance model should be established to sustain changes?
 How can roles, responsibilities, and accountabilities be defined within the company / division and with
key stakeholders?
 What are the company / division’s ideal service levels?
 What processes, tools, and technologies are needed to meet core stakeholder requirements?
 What core talent skill sets will be required in the future?
 What metrics / KPI’s can be established to measure performance and link to return on investment?
 How do we benchmark against similar companies for these functions both on a cost and effectiveness
basis?
 What performance management approach (e.g., balanced scorecard, planning / budgeting cycle)
should be established?
AlignedandLinked

Elements of the Planning Process where
we have deployed ZBB Principles
Strategic Plan Financial Plan
Capital Plan
Initiatives
Scenarios/
Contingencies
Detail
Budget
Rolling
Forecast




 
Areas where Deloitte has used elements
of ZBB to drive prioritization
 Corporate Strategic Planning group develops strategic
plan; targets allocated to major business units
 Capital Plan, implementing strategies from strategic
plan, identifies costs and benefits from capital projects
 Business units identify major operating initiatives and
develop pro forma projections of P&L impact
 Based on allocated targets, business units (including
G&A functional areas) develop summary-level plans
using a driver-based model
 Business units identify potential economic or market
developments (favorable or unfavorable) and project
P&L impact and contingency plans
 Final business unit plans and targets are cascaded
down to the rest of the organization for performance
monitoring and expense control
 Monthly or quarterly rolling forecast (through end of
next year or a rolling 12-18 months) performed using
driver-based planning model

Key Outcomes
Program Objectives
• As part of a broader
organization cost-cutting
initiative, reduce group budget
by 25% over 3yr period;
• Reduce dedicated business
support, shift toward flexible
service model
• Reduce organizational layers
and increase spans of control,
for improved leadership
development
• Retain critical talent throughout
organization
Scope
• $265 M in spend, including:
‒ Compensation
‒ Operating Expenses
‒ External Spend
• 350 employees, across more
than 15 countries
Key Activities
• Established detailed cost and
activity baseline
• Determined sub-functional
reduction targets based on
external benchmarks
• Redesigned organizational
structure, function-wide and within
sub-functions
• Conducted detailed external spend
assessment, reduced costs
through project terminations,
vendor consolidation, and other
areas; establish external spend
governance strategy for future
maintenance
~25%
reduction
• $65 M in sustainable year-
over-year operating cost
savings identified
2012: $256 M 2015: $195 M
ZBB case
study
Global
Pharma
Company

The ZBB pilot approach
It is important to develop a multi-phased roadmap that starts with a solid – yet flexible –
pilot, which will support the short-term needs and the longer term vision
Mobilization and
Training0
Stakeholder Input
and Baseline
Development1
Future State
Design and
Requirements2
Roadmap / Summary of
Changes3
• Establish program
objectives
• Secure Stakeholder buy-in
• Establish Functional
Taxonomy
• Complete Financial Planning Solution
• Data Integration Architecture
• Scalable and extendable platform
• Deeper planning and analytical
functionality
• Expansion beyond Finance into an
enterprise wide planning solution.
• Operational Excellence
• Continuous improvement in forecast
accuracy and reductions in cycle time
• Improved insights

Solution
Considerations
Anaplan solution case study
Leveraging cloud architecture enables real time demand scenario analysis on market changes.
• Agility of a cloud
platform to address
the dynamic business
environment
• Integration of top-
down targets with
detailed bottom-up
budgets
• Real-time scenario
modeling
• Self Service for all
user
 Causal analysis
ERP
Workday HRC
MEI – Trade Spend
GL
MM
AP
AR
Markets
Master Data
Data
Svcs
Anaplan
Connect
Anaplan
Connect
In Memory
Cloud
Data Hub
Model
S&OP
Demand Planning
and Optimization
Workforce
Planning
Sales Forecasting
SG&A &
Allocations
In Memory
Cloud
Dashboards
Excel
Reporting
on Cloud
Other
Visualizatio
n
In-Memory
Models
Anaplan
Reports
Data Source Data Staging
Analytics
Applications
Reporting
Master Data Management and Data Governance

B/S & C/F
Debt/ Cash Facilities
Inventory M&A
Consolidations
Transfer
Pricing
IFRS Disclosures
Planning Methods
ABC
Rolling
Forecast
Driver
Based
Statistical
Forecast
Allocations
ZBB
P&L - Top Line
Revenue Sales
Cost of Sales Marketing
P&L - OPEX
Marketing G&A
WFP Allocations
P&L
B/S
C/F
Regulations
Start where you need smarter planning …
Operations
Reporting
&
Analysis
Top Down
Bottom Up
Strategic Planning
Long
Range Plan
M&A
Revenue What-If
KPI’s Initiatives
US GAAP

“
Key takeaways Ed Majors
Principal
Deloitte Consulting, LLP
emajors@deloitte.com
Ron Dimon
Managing Director
Deloitte Consulting, LLP
rdimon@deloitte.com
• It is critical to define the “Big Picture” upfront
• Make sure you know your current planning,
budgeting & forecasting landscape
• People, Processes, Technology & Data
• Identify where ZBB will have the most
impact
• Enroll a key stakeholder using a financial
impact business case
• Implement a pilot program to prove out the
benefit
• Go/No-Go

Q A

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