The Practicon Viewpoint by Ann Page Griffin

WHAT IN THE WORLD IS ZERO-BASED BUDGETING?

A SUREFIRE WAY TO REDUCE OVERHEAD COSTS

There are two ways to increase profitability: earn more and spend less. Control of expenses (savings) is one of the most underutilized, yet valuable tools to increase profitability in a dental practice or any business. Dollars not spent go directly to the bottom line as profit.

There are two types of budgeting available: Zero-Based and Incremental. Incremental is the type of budgeting most people are familiar with: an annual earnings goal is set and a percentage of that total is allotted to the various categories of expenses in the practice, business, organization, or home. Here, we'll be focusing instead on the zero-based process.

Zero-Based Budgeting (ZBB) involves questioning every activity or expense in the office to see if it is appropriate and necessary and then justifying the cost of each activity or expense. ZBB is an invaluable exercise for the mature dental practice that has had procedures, work systems, operational expenses, and activities in place for so many years that they have become a habit—never questioned and always paid.

Many profitable businesses find that the zero-based review is most helpful when done every two to three years, whereas the incremental process must be planned and written every fall for the year to come. To begin the ZBB process in your office, ask for staff input to create two lists of systems, equipment, supplies, methods, processes, and procedures used (1) in the clinical area and (2) in the business area. Include not only "hard" items such as supplies, but routine work systems, marketing activities, and so on, which may have become stagnant or ineffective during years of use.

A day-long retreat away from the office with all dentists and team members in attendance is the best venue for the zero-based budgeting process. The evaluation and justification process should be uninterrupted. Insist on an objective discussion, challenging what in the office should remain in place as is, what should be modified, and what should be eliminated.

The following questions facilitate the ZBB process:

1. What is this activity, item, or expense for?
2. Why are we still doing this?
3. Is it still necessary?
4. What would happen if we stopped?
5. What alternatives are there?
6. How much could be saved by eliminating or doing this differently?
7. What would alternatives cost?

Plan to have the ZBB retreat in the fall, before the writing the incremental budget for the following year. The first ZBB session will be the most difficult as the process will be unfamiliar. With continued use, however, the process will become easier and more effective. The savings achieved will make the effort well worth the time and expense invested.

Be sure to check out our Free Resources for Your Practice for additional insights, information, and practice management tips.