Zero-based cost management: A holistic approach to managing budgets

In the current economic environment, there is increasing interest in the concept of "zero-basing" cost and activity levels. Although the concept of zero-basing is understood in theory, it is often misapplied. A structured and pragmatic approach to zero-basing can help achieve sustainable cost reduction while protecting key activities.\r
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This report was originally published by Booz & Company in 2010.\r
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Executive summary\r
Though world economies show some signs of emerging from recession, cost management remains a top priority and a key performance driver for most companies. Many businesses have weathered the downturn by addressing easily accessible cost reduction opportunities. However, making signi?cant and sustainable cost reductions without threatening performance and competitiveness is more difficult because many companies are unable to systematically identify and analyze the full range of activities undertaken by the business and the associated costs and business impacts. For that reason, there is increasing interest in the concept of 'zero-basing' cost and activity levels, an approach in which costs are tackled at the root by reexamining each corporate activity as if it were brand-new. Although the concept of zero-basing is understood in theory, it is often misapplied. A structured and pragmatic approach to zero-basing can help achieve sustainable cost reduction while protecting key activities.\r
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Key highlights\r
Sustainable cost reductions are difficult for many companies because they are unable to systematically identify and analyze the full range of activities undertaken by the business and the associated costs and business impacts.\r
Zero-based cost management is a holistic approach that tackles costs at the root by assessing expenses for all organizational activities in a structured, pragmatic, and dispassionate way. Zero-base analyses target costs in a department, a group of projects, or across organization units, o?ering greater opportunities to identify structural budgetary problems and required cost interventions.