CORPORATE GOVERNANCE: ZERO-BASED BUDGETING (OBZ)

The Business Budget is a tool that assists in the quantification and monitoring of what was defined in the Strategic Planning. As discussed in the article Corporate Governance: Business Budget, there are several methodologies for preparing a Budget, such as Static, Flexible, Continuous, Incremental, Historical, and Revised Budgeting (Forecast) and Zero-based. The company must choose the methodology that best suits its business, as well as the moment it is in, its maturation stage, and the application of Corporate Governance. The Zero-based Budget (OBZ) is the planning of a new budget cycle without defects. It is one of the methodologies that have a high impact on management, since, for the preparation, historical data and information are not considered. The OBZ assumes that all expenses, costs, revenues, and investments will be constituted from scratch, like a blank sheet, and each resource will be carefully evaluated in accordance with the guidelines of Strategic Planning and its consequent relevance to the company. Unlike an Incremental Budget methodology, for example, which evaluates history and corrects expenses at a certain rate, this methodology seeks the best efficiency of resources, since it assesses the need and origin of each expense. The OBZ methodology does not rule out the possibility of evaluating historical data, but its main difference from other methods is that it serves as a knowledge base and not as a definition of expenses. The OBZ is an excellent way to review all expenses in order to eliminate unnecessary expenditures, direct investments and rethink new alternatives to recurring expenses, thus optimizing the application of company resources. The OBZ is mainly suitable for companies that have experienced successive increases in their costs and expenses and that, by as a result, their Operating Margins have been deteriorating. This event occurs frequently with companies that experienced large and disorderly growth.

The following can be highlighted as the main steps within the OBZ: Definition of Budgetary Strategies and Goals, Definition of Zero-based Packages, Definition of the Responsibility Matrix, Prioritization and Preparation of Packages, and Monitoring of the Zero-based Budget.

• Definition of Budgetary Strategies and Targets: An essential step for this methodology, since it will be necessary to define priorities according to the company's goals and objectives. Therefore, without clear and well-defined goals, the application of the methodology will be compromised.
• Definition of Zero-based Packages: Packages are groupings of accounts with a similar nature or characteristic for better analysis and planning of the business budget. For example, all accounts related to travel expenses (hotel, ticket, and food) can be allocated to the zero-based variable “Trips and Stays”. From then on, they will be budgeted at cost centers at different levels, such as administration, commercial and industrial, and grouped into packages called “Utilities”.

• Definition of Responsibility Matrices: After defining the packages, it will be time to delegate responsibility to key managers in the budgeting process, who must study the accounts and their expenses to propose an appropriate structure.
• Prioritization and Preparation of Zero-based Packages: At this stage, the budget of the packages that were previously studied will be prepared, scaling the expenses for each zero-based variable, building a calculation memory and justifying in detail the request for new resources, increases or reduction of expenses so that the manager can make the decision to approve, disapprove and eliminate the proposed budget.
• Monitoring the Zero-based Budget: Once the budget has been approved, this stage becomes part of the manager's daily routine, which must be followed up in a spreadsheet or management system on a monthly basis, ensuring that the expenses are made as planned and justifying possible deviations.

The Zero-based Budget is generally more complex and requires more time than other budgeting methodologies, so it is important to anticipate its preparation, and not to leave it just until the last quarter of the year. In an increasingly competitive environment and in scenarios with a high degree of uncertainty, the choice of a budget management tool can be a differential for the prosperity of a company, in addition to a good opportunity to reevaluate and better manage the application of its resources.

ARTICLE WRITTEN BY ISABELLE COSTA — ASSOCIATE OF FC PARTNERSGo to our site: http://www.fcpartners.com.br