ZBB – sounds like an acronym for something in a sci-fi movie. In fact, its stands for Zero-Based Budgeting .
Zero-based budgeting (ZBB) is a method of budgeting used by finance directors and CFO s to rebase the organisation as part of an annual planning process.
With ZBB, all costs must be justified for each new period from scratch. For example, if you work in marketing, the base of the marketing budget is zero. This means each year the CFO does not grant you any money unless the marketing director can justify why they need it. Instead of using last year’s budget as a starting point and adjusting it for the new period, zero-based budgeting starts from a “zero base”.
The key point is start from zero .
ZBB is seen to encourage cost consciousness and eliminate annual budget inflation. Think of the civil servant who has to spend all of their allotted money, even if it isn’t necessary, just to ensure they get the same next year!
Business aviation needs its own version of ZBB: ZBT – Zero-Based Thinking. ZBT is one of the most powerful thinking and decision-making tools to use in planning. The process forces you to stand back, to look at every part of your business and ask: “Knowing what I now know, would I still make the same decision? Would I get involved in this area again? “
ZBT has two great qualities:
- Clarity: It provides clarity on what is and isn t working.
- Reduces Sunk Cost Fallacy: Humans often continue on a specific path or use specific knowledge because they have invested time, money, or effort into it, even if it’s no longer true or isn t working. Or, worse still, we continue to use it because we are too lazy to update our mental model.
Zero-Based Thinking clears our mental state and enable us to consider all the possible ways to solve our business and industry challenges. Applying ZBT means we can:
- Think openly to generate broad ideas and activities to cope with the challenges facing business aviation.
- Choose an anything is possible mindset to adopt and not stifle ideas and innovative actions with concerns about practicalities. Indeed, given the issues facing our industry, we must believe that anything is possible .
ZBT can also be useful when conducting industry and market analysis. If we reflect on the business aviation market over the last 3 years, nearly every data set produced draws comparison to 2019, i.e. the year before Covid. In reality, 2019 was a fairly dull year which showed some growth; the industry descriptor of choice at nearly every conference was cautious optimism . Interestingly, the measures of growth in 2019 used 2007 as a base line as this was the year before the 2008 financial crash.
Life after 2019 has not just been affected by the global pandemic. Brexit, war in Ukraine and the Middle East, sanctions, climate crisis, bank failures, global inflation and interest increases are just some of the events which have altered the business conditions of the industry and the way in which we work. With each passing day it is clear that nothing is going to revert back to 2019 conditions and perhaps now is the time to employ ZBT for business aviation going forward. It may force us not just to consider new ideas but also to embrace the changes and seek opportunities from them.
Sure, there will be ideas that need to be further developed and finessed, but we need to develop broad solutions and innovate by looking at other industries before we start any filtering process. Both business aviation as a whole and each business within can challenge themselves to start with Zero-Based Thinking today. Be rigorous with ZBT, as the time for making choices is coming; if we keep comparing ourselves to a past which will never reappear, we face being left behind in it.
Both business aviation as a whole and each business within can challenge themselves to start with Zero-Based Thinking today.
