Ever since it rose to prominence in the 1970s, zero-based budgeting — a method that requires accounting for every dollar during a budget period — has been more of an aspiration than a widespread reality.

Consider how it worked for federal agencies under former President Jimmy Carter, who tried and failed to make ZBB the modus operandi of the federal government during his presidency. 

Despite the implementation challenges associated with ZBB, the approach has regained attention in recent years, with thought leaders such as McKinsey recognizing its potential. If ZBB could be made to work, it would be incredibly beneficial to organizations — enabling finance leaders to execute strategies based on fully optimized, data-driven resource allocations. 

How AI changes the game

So how do we turn ZBB theory into real-world practice? The answer lies in the game-changing capabilities of artificial intelligence.

What makes it possible for AI to produce ZBB gold for finance leaders is its ability to both analyze and remember spending at scale. From the outset, AI reduces the time and resources needed to do that first vital step of genuinely analyzing and justifying each budget item. Further, by providing transparent and consistent data analysis, it can also help foster a cost-conscious, responsive and proactive organizational culture.

And in this year’s still uncertain global economic environment, adopting a disciplined approach like ZBB could be crucial for relentlessly driving value out of each dollar your organization spends right now.

Making it real

Our experience with customers utilizing AI-powered autonomous sourcing and spend management has revealed that by leveraging machine learning across vast datasets, we can effectively operationalize ZBB for newly purchased or annually repurchased items.

That last point is actually critical in the making-ZBB-real project. That’s because the crucial factor enabling the practical implementation of ZBB is an autonomous sourcing platform, which continuously analyzes deep data about your organization’s indirect spending history and patterns.

Placing digital processing at the heart of any procurement workflow, regardless of whether adhering to ZBB principles or not, advances efficiency by ensuring that the entire paper trail has been automatically documented and stored for future access. This makes it so much easier for subsequent ZBB teams to review what has been done and achieve the same or even better outcomes.

With the emergence of AI, almost all of the traditional challenges associated with ZBB have disappeared. This not only makes ZBB a more viable and sustainable approach to budgeting, but it also fulfills the inventor’s original vision of us finally allocating funds based on today’s strategic intent rather than on the basis of “what we’ve always done around here.”