The implications of zero-based budgeting for operations managers

I do not want to stay too far into the realms of finance, but clearly an organisation’s financial strategy, policies and practices have implications for the operations function.  And what struck me whilst reading this McKinsey & Company article about zero-based budgeting (ZBB) were some similarities between this and lean thinking.   It illustrates that one function can think about a challenge, such as cost control, in one way, whilst another function uses different concepts and language to tackle the same thing.

The article seeks to deconstruct five “myths” about ZBB.  I’m not going to state these, but here are the five “realities” McKinsey & Company propose, along with my ‘lean’ comments:

  1. “ZBB is a repeatable process to build a sustained culture of cost management” – almost a definition of lean.
  2. “The degree of cost reduction is based on the company’s top-down target” – not so lean, as it is often difficult to set lean cost reduction targets, more bottom up than top down.
  3. “Initial rollout of a new ZZB program can be led by a central team and completed in four to ten months” – not lean!  Most lean initiates take years, although some quick wins may be achieved.
  4. “ZBB can be applied to any type of cost…(including) cost of goods sold” – so the operations function may definitely have to engage with this policy if adopted by the company.
  5. “ZBB is successfully used by growing companies to redirect unproductive costs to more productive areas that drive growth” – lean may do this too.
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This entry was posted in Chap 15 Lean and agile, Operations Management and tagged , . Bookmark the permalink.

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