Pragmatic Zero-Based Budgeting in Health & Life Sciences: a Private Equity Perspective
The whole healthcare sector, from care delivery to pharmaceuticals, is facing significant financial,
technological and operational issues. It is likely that COVID-19 will accelerate change in a range of areas, such as speeding up the digitisation of hospitals and revolutionising pharmaceutical sales models. Likewise, supply chains need to be put to the test and be revisited from scratch.
Given the potential for rapid change in healthcare models, how can businesses ensure that spend is going in the right direction and costs are being controlled effectively, particularly in the subsectors with the highest fixed costs? Mandating top-down cost reductions can be effective but often do not capture all possible savings and can alienate management and staff.
An alternative approach is to employ a zero-based review. These can be company-wide or deliberately targeted at areas impacted by significant technological or operational change. Zero-Based Budgeting (ZBB) is a management framework that can be employed to both release resources for redeployment in other areas of an organisation to create value as well as reducing costs. Ideally, it is set into the context of a review of the existing operating model and the definition of a fit-for-purpose target operating model.
Sustainable cost restructuring is a traditional value lever for PE firms, but there are different approaches to executing this kind of plan. In the healthcare space and beyond, Pragmatic-ZBB reviews quickly improve transparency and enable closer links between cost transformation and the broader strategic plan, helping move the organisation towards the end goal of a new target operating model.
Click here to read the full article.
Those interested in learning more about A&M’s Pragmatic-ZBB approach can read our full report, titled 'Pragmatic Zero-Based Budgeting: Maximising Value in a COVID-19 World'.
If you are interested in discussing how we could help you through a Pragmatic-ZBB implementation, please get in touch with one of our experts David McArtney, Georg Hochleitner or Naresh Kumar.
