J.K.

OKE

THE BUDGETS ARE NORMALLY FORMULATED AFTER TAKING INTO ACCOUNT PREVIOUS / LAST YEARS BUDGET THIS METHOD THEREFORE IS NOT ALWAYS CONSIDERED TO BE RATIONAL AND MAY LEAD TO DISCREPANCIES, AS TRENDS MAY NOT BE NECESSARILY REPEATED HENCE ZERO BASE BUDGET, WHICH WAS APPLIED, FOR THE FIRST TIME, BY PETER PHYRR FOR REVIVING A LEADING, SAGGING ELECTRONIC COMPANY , TEXAS INSTRUMENTS, IN 19999969.

THE ZBB APPROACH ASKS THE RESPONSIBILITY MANAGER TO RE-EVALUATE THE ACTIVITIES AND THEN FORMULATE THE ENTIRE BUDGET FOR THE RESPECTIVE RESPONSIBILITY CENTRE IN ZBB, THE RESPONSIBILITY CENTRES ARE REFERRED TO AS DECISION UNITS, AND THE ACTIVITIES WITHIN THE RESPONSIBILITY CENTRES ARE REFERRED TO AS DECISION PACKAGES

ZBB, IS A TECHNIQUE DESIGNED TO EVALUATE THE WHOLE SPECTRUM OF FUNCTIONAL ACTIVITY SO THAT AREAS THAT ARE INEFFICIENT AND OF LITTLE VALUE ARE IDENTIFIED (AND, HOPEFULLY, REMOVED/ELIMINATED)

THE ZBB PROCESS CONSISTES OF THREE BASIC STEPS AS FOLLOWS: 1. IDENTIFTY DECISION UNITS AND DEVELOP DECISION PACKAGES 2. EVALUATE AND RANK ALL DECISION PACKAGES IN ORDER OF IMPORTANCE THROUGH COST/BENEFIT ANALYSIS OR SUBJECTIVE EVALUATION, AND 3. ALLOCATE RESOURCES ACCORDINGLY.

DECISION UNIT IS LIKE A RESPONSIBILITY CENTRE IT CAN BE RELATED TO THE FUNCTIONS MENTIONED IN THE ACCOUNTING SYSTEM OF THE ORGANISATION A DECISION PACKAGE GIVES A DESCRIPTION OF THE ACTIVITIES THAT TAKE PLACE IN THE DECISION UNITS. A DECISION PACKAGE DETAILS THE GOALS & OBJECTIVES OF THE ACTIVITY, SPECIFIC MEASURES OF PERFORMANCE, PROJECTED COSTS OF THE PACKAGE etc.

THE DECISION PACKAGES ARE REVIEWED & RANKEDIN THE ORDER OF DECREASING BENEFIT TO THE FIRM/ORGANISATION RANKING IS DONE ON THE BASIS OF A COSTBENEFIT ANALYSIS THE DECISION PACKAGES ARE RANKED WITH A VIEW TO ALLOCATING THE LIMITED RESOURCES ACCORDINGLY.

RANKING OF THE DECISION PACKAGES FACILITATES RESOURCE ALLOCATION THE TOP MANAGEMENT DECIDES ON THE ALLOCATION OF RESOURCES ON THE BASIS OF RANKINGS. THE TOTAL AVAILABLE RESOURCES WOULD DETERMINE THE ACCEPTABLE/PERMISSIBLE EXPENDITURE BEFORE ALLOCATING RESOURCES, THE AVAILABLE RESOURCES ARE FORECASTED & MATCHED WITH THE RANKED DECISION PACKAGES ON A CUMULATIVE AMOUNT BASIS

1.HELPS IN FORMULATING BUDGETS MORE RATIONALLY 2. RESOURCES ARE ALLOCATED FROM LOWER TO HIGHER PRIORITY AREAS 3. ZBB PROVIDES A BETTER LINK BETWEEN PLANNING & BUDGETORY CONTROL

4. PROVIDES THE MANAGEMENT WITH BETTER INSIGHT INTO THE DETAILED WORKING OF THE ORGANISATION

5. ZBB LEADS TO ORGANISATIONAL DEVELOPMENT DUE TO IMPROVED AWARENESS, BETTER COMMUNICATION, WIDER PARTICIPATION & IDENTIFIABLE AIMS OF THE ORGANISATION 6. ZBB ENCOURAGES IMPROVED METHODOLOGY OF OPERATIONS, INTRODUCES MBO THROUGH FINANCIAL MANAGEMENT & JUSTIFIES BUDGET ALLOCATIONS AT ALL LEVELS 7. IT CREATES A CULTURE OF COST EFFECTIVENESS & EFFICIENCY & ALLOWS FOR QUICK BUDGET ADJUSTMENTS IF REVENUE FALLS SHORT DURING THE YEAR .

8. IT ENABLES THE TOP MANAGEMENT TO EVALUATE THE MANAGEMENT CAPABILITY OF SUB-ORDINATE MANAGERS 9. IT ELIMINATES REDUNDANT EXPENDITURE 10. IT MANAGES ACTIVITIES WITH MORE FLEXIBILITY & HELPS IN DEVELOPING ALTERNATIVE METHODS OF OPERATIONS

11 IT PROVIDES BETTER INFORMATION & SUBSEQUENTLY BETTER FUNDS MANAGEMENT. 12. IT HELPS IN RAISING COST CONSCIOUSNESS IN ADMINISTRATION. 13. IT ASSISTS THE TOP MANAGEMENT IN DOING SOME DETAILED PLANNING & GOAL- SETTING FOR THE COMING BUDGETY PERIOD EARLY. 14.FINALLY, IT PROVIDES ALL MANAGERS WITH A UNIFORM BASIS FOR REVIEWING THE CURRENT YEAR-END & ESTIMATING ITS REQUIREMENTS

ZBB DEMANDS MORE INFORMATION, EXCESSIVE PAPER WORK/DOCUMENTATION & MAY RESULT IN HIGH COSTS IT TAKES UP MORE TIME THAN THE CONVENTIONAL/TRADITIONAL BUDGETING & LAYS MORE DEMANDS ON THE CREATIVE ENERGIES OF THE PEOPLE DATA / INFORMATION RETRIEVAL MAY NOT BE EASY IN ZBB

IT REQUIRES MULTI-LEVEL DECISION-MAKING PROCEDURES & THIS MIGHT BECOME DIFFICULT IF THE COMMUNICATIONS ARE NOT PROPERLY DEVELOPED ZBB DEMANDS NEW INNOVATIONS OF THE DECISION PACKAGES WHICH ARE TO BE CONCEIVED, EVALUATED & COMPARED, WHICH IN TURN, IS A DIFFICULT JOB FOR THE MANAGERS.

IT IS NOW REALISED THAT NOTWITHSTANDING THE LIMITATIONS OF THE ZBB, THE BENEFITS OF ZBB FAR OUTWEIGH THE LIMITATIONS ZBB THEREFORE IS NOW BEING USED AS AN EFFECTIVE BUDGETING TECHNIQUE FOR PROVIDING A FOCAL POINT FOR REVISING & REVIEWING PLANNING PROCESS/ASSUMPTIONS.