Why zero-based budgeting is back in style

The pandemic has driven firms to rethink how much product they’re buying and how much they’ll need to meet demand.

As enterprises search for ways to cut spending and forecast demand in unpredictable times, zero-based budgeting, and its subset, category management, are back in style.

Together, they mean a company takes every line item in every category and justifies its existence. It’s “building from the bottom up, the true category demand and specifications as opposed to relying on historical patterns,” McKinsey partner Samir Khushalani said.

This is especially relevant now, when historical metrics don’t necessarily apply. The pandemic is “causing us to totally rethink our category strategies both in terms of what we are buying and how much of it do we need,” Khushalani said. “Everything’s changed.”

Enterprise can go beyond cutting just discretionary spending, if they put in the work to completely rethink how they spend money.

Source: CFO Dive

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