The ins and outs of ‘zero-based budgeting’
It looks like Kraft will be put on a strict diet after its merger with Heinz.
That diet could come in the form of zero-based budgeting which the parent company behind the deal – 3G Capital Partners – uses as part of its cost-cutting playbook.
It involves managers justifying spending plans from scratch every year, and not just carrying over the last year’s budget.
“Every department within a large organization would have to justify their existence,” says Shane Dikolli, a professor of management accounting in the MBA program at Duke University.
He says when 3G Capital Partners took over Heinz, it saved money by getting rid of corporate jets, and even limited use of company printers.
But there are drawbacks. Zero-based budgeting is time consuming, and can hurt morale. That’s why many companies just do it every few years.
But it is catching on, and not just in corporate suites. The Iowa governor’s budget office uses snippets of zero-based budgeting to examine government programs. And Iowa lawmakers are considering legislation to bring the state even closer to a zero-based budgeting system.
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