Zero-based budgeting has a reputation that alternates between management consulting gold and operational nightmare, depending on who you ask and what they have been through.

The concept is straightforward. Instead of starting next year’s budget from this year’s actuals and applying a growth or efficiency assumption, you start from zero. Every cost line has to be justified from scratch. Every headcount position has to be re-defended. Every external contract has to earn its place as if it did not exist before.

Theoretically, this eliminates budget padding, surfaces hidden inefficiencies, and aligns spending directly to strategic priorities. In practice, it is one of the most resource-intensive processes in corporate finance, and for most mid-size companies, the cost of doing it properly exceeds the benefit. The honest answer to whether you should try it depends almost entirely on why you are considering it and what you are realistically able to execute.

What Zero-Based Budgeting Actually Does

The promise of ZBB is that it eliminates the automatic inheritance of prior-year cost structures. In a traditional incremental budget, a cost centre that spent CHF 180K last year will typically budget CHF 185K this year, adjusted for inflation, headcount changes, and whatever negotiating happened between the budget holder and finance. Nobody asks whether the CHF 180K was well spent in the first place.

ZBB interrupts that inheritance. Each budget holder is asked to justify their spending requirements from first principles: what does this activity cost, why does it need to be done, what does the business lose if it is not, and is there a cheaper way to achieve the same outcome?

Done rigorously, this process will surface costs that exist only because nobody has questioned them for several years. Subscriptions that are barely used. Vendors retained out of relationship inertia rather than value. Organisational layers that existed for a former business model. Overhead that scaled up during a period of growth and never scaled back down.

The problem is that doing it rigorously requires a significant amount of management time, a detailed cost data architecture that most mid-size companies do not have, and a finance team capable of facilitating the analysis across every function simultaneously. This is why ZBB is predominantly used in large corporations and in private equity-backed situations where cost reduction is the explicit mandate, not in stable mid-size businesses running a routine budgeting cycle.

When ZBB Makes Sense

There are three situations where the ZBB investment is genuinely justified.

Major cost restructuring. If the business has decided to change its operating model significantly, whether through a reduction in headcount, a product line rationalisation, an operational restructuring, or a move into a different cost structure, ZBB provides the analytical framework to rebuild the cost base from the new model rather than inheriting the old one. Incremental budgeting cannot do this: it anchors to a past that the company is trying to move away from.

New ownership or leadership with a mandate to reset spending. When a new management team or investor takes over and believes that the existing cost structure does not reflect strategic priorities, ZBB provides the mechanism to make that belief explicit and actionable. It forces the organisation to defend every line, surfaces the politically protected costs, and gives the new leadership a comprehensive view of what the business is actually spending on.

A business in financial difficulty where the cost base needs to be fundamentally reduced. If the company is in a situation where incremental cuts are not enough and the question is genuinely which activities should continue at all, ZBB provides the framework for that conversation.

What is common to all three situations is that they involve a fundamental question about the cost structure that incremental budgeting cannot answer. If you are not asking a fundamental question about your costs, ZBB is solving a problem you do not have.

When ZBB Does Not Make Sense

For most Swiss mid-size companies running a stable business with a known cost structure and a capable management team, ZBB will consume more time than it saves and create more organisational friction than value.

The specific cost is significant. A proper ZBB process requires every budget holder to document their spending from scratch, finance to review and challenge those submissions with enough knowledge to push back meaningfully, and the process to be completed within the budget calendar. For a company with 20 to 50 budget holders, this is a multi-month exercise. The preparation for it alone, before any numbers are produced, typically takes six to eight weeks.

It also carries a cultural cost. ZBB explicitly communicates distrust of the existing cost structure, which can demoralise teams whose spending is actually well-managed and whose costs are genuinely necessary. A business controller who has been building a productive relationship with department heads through collaborative budgeting will find that relationship strained by a process that starts from the premise that nothing is justified unless proven otherwise.

The opportunity cost matters too. The finance team time spent on a full ZBB exercise is time not spent on variance analysis, forecasting improvement, or the cost centre reporting that provides ongoing visibility throughout the year.

The Lighter Alternative: Activity-Based Budget Review

For companies that want the discipline of questioning their cost structure without the full ZBB commitment, there is a practical middle ground.

Rather than rebuilding every cost from zero, identify the three to five cost categories that represent the largest combined spending and have not been rigorously reviewed in the past two to three years. Apply a simplified ZBB-style review to those categories only. For the rest, use the incremental approach with a modest efficiency assumption applied consistently.

The categories most worth reviewing in this way are typically: external services and consulting (where scope creep and relationship inertia create significant inefficiency), subscriptions and software licences (where spending has often accumulated faster than actual usage), and discretionary overhead categories like travel, entertainment, and marketing spend (where the link between input and output is weakest).

A focused review of these three areas in a typical mid-size company will usually surface CHF 50K to CHF 200K of potential savings, depending on company size and historical cost discipline. That is a meaningful finding achievable in two to four weeks rather than the three to four months a full ZBB process requires.

This selective approach captures sixty to seventy percent of the value of ZBB at ten percent of the effort. For most stable businesses, that is the correct trade-off.

If You Do Proceed: How to Make It Work

If the situation genuinely warrants a full ZBB process, the following principles separate successful implementations from expensive ones.

Start with clear definitions. Every budget holder needs to understand exactly what justifying a cost means in this context. The standard should be: what does this activity cost, what business outcome does it produce, and what is the consequence of reducing or eliminating it? Without a clear standard, ZBB produces a compliance exercise rather than a genuine challenge process.

Provide the data. Budget holders cannot justify their costs from scratch if they do not have clean data on what they actually spent last year, by category. Before the ZBB process begins, the finance team needs to produce a detailed cost centre P&L for each budget holder, categorised in a way that is meaningful to them and comparable across functions.

Time-box the justification phase. Left unconstrained, budget holders will spend weeks building elaborate justifications for every line. Set a specific deadline, provide a structured template, and enforce the deadline. The discipline of the process matters as much as the content.

Challenge selectively. The finance team’s capacity to review and challenge ZBB submissions is always a constraint. Allocate that capacity to the highest-risk areas: functions with historically high spending growth, cost centres where management has changed recently, and discretionary categories where the spend-to-outcome link is weakest.

Communicate clearly about what happens with the findings. Budget holders will be cautious about a ZBB process if they believe that identifying efficiencies simply results in their budget being cut without any recognition of the effort involved in the review. Clear communication about how savings will be treated, including reinvestment of some portion into strategic priorities, produces more honest and more useful submissions.

The Bottom Line

ZBB is not a methodology for the routinely disciplined. It is a tool for specific situations: restructuring, ownership change, financial difficulty. For stable mid-size businesses running good incremental budget processes with solid variance analysis, it is a solution in search of a problem.

The right question is not whether ZBB is theoretically superior to incremental budgeting. It is whether the specific cost structure questions your business is trying to answer are ones that only a zero-based approach can address. For most mid-size Swiss companies, the answer is no, at least in most years.

If the answer is yes, the lighter activity-based review often gets close enough. And if the full process is genuinely warranted, the principles above give it the best chance of producing useful findings rather than an expensive document that nobody acts on.

Need help building or improving your budget process? Book a free 30-minute call to discuss your situation.

Alessandro Ratzenberger is a fractional CFO and business controller based in Zurich, with 15 years of operational finance experience at Dufry Group and Bomi (UPS Group).