Episode 12: Path to Retail Recovery: Zero-Based Budgeting (Part 3)

Announcer: Welcome to this episode of “60-second Retail” - a BDO podcast keeping you in-the-know on events and trends in retail and consumer products industry impacting your bottom line, in just a few short minutes.

Natalie:  Hello. My name is Natalie Kotlyar. I am the National Leader for the Retail and Consumer Products industry group at BDO USA. In this episode we are speaking with Ross Forman, Managing Director of the Corporate Real Estate Advisory Services group & Asif Hussain, Director of the Enterprise Operations in the Corporate Real Estate Advisory Services group at BDO USA. We are here to discuss zero-based budgeting, what it is, and how it can help provide some relief for struggling retailers.

Tell us about zero based budgeting and can it offer immediate relief for struggling retailers?

Ross: Zero based budgeting is not a short-term initiative. It's a long-term method of justifying spend. It's thinking about spend differently without using the prior year's budget or prior year spend number, so no activities are assumed to be untouchable.  All expenses are judged and must be justified in order to remain in the budget.

It is an important approach and methodology that periodically, all the organizations in every industry including retail, that certainly is challenged, to be taking a fresh perspective from scratch and justifying all spend categories.

Asif – your thoughts on the value of ZBB?

Asif: I think this is the surest way of achieving cost savings. We have seen that 72% of organizations who enable a ZBB program are able to reduce costs in key categories by 10% to 12% at a minimum. But it does take a little bit of investment and there are some prerequisites.

You need to have a very accurate line of sight into baseline costs, or cost benchmarking, is a prerequisite.

You need a very good governance structure to enforce this trick. Controllership and cost justification standards. You need the policies and procedures to back that up.

And you need stakeholder buy-in. Each business unit owner would be a package owner and therefore would be directly accountable for the cost, justifications.

And of course, you need to track performance against the reduced cost targets. Those are some of the prerequisites.

But the good news is, unlike 10, 15 years ago, due to digital technology, due to the tech enabled governance structure, ZBB can be rolled up much sooner and can be monitored and enabled without a lot of the pain that came with the all-out sort of initiative maybe 10,15 years ago. So, you can recover value much more quickly and more painlessly today, than in the past.

Natalie: Thank you Ross and Asif and I look forward to speaking with you soon.

Announcer: And that concludes this episode of BDO’s “60-second Retail” podcast. Don’t forget to tune in for the next episode! To find more information on our hosts, guests, BDO’s services, or listen to previous episodes of “60-second Retail”, please visit www.bdo.com/60-second-retail.



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