ZERO- BASE

BUDGETING
WHAT IS ZERO-BASE BUDGETING?
• A method of budgeting in which all expenses must be justified
for each new period. Zero-based budgeting starts from a “zero
base” and every function within an organization is analyzed
for its needs and costs. Budgets are then built around what is
needed for the upcoming period, regardless of whether the
budget is higher or lower than the previous one.
DIFFERENCES:
TRADITIONAL ZERO- BASE
• It is more accounting • It is decision oriented.
oriented. • Its approach is towards
• Its approach is achievement of
monitoring towards objectives.
expenditure.
TRADITIONAL ZERO-BASE
• Its focus is on increase • It focus is on cost
or decrease of benefit analysis.
expenditure over the • It encourages
post. communication both
• In traditional budgeting, vertical and
communication is very horizontally.
vertical.
PROCESS:
• The objective of budgeting should be determined. When the
objective is clear, then efforts will be made to achieve that
objective.
• Next is to decide which operational areas should be applied.
• The next step in zero based budgeting is developing of
‘decision packages’.
• Cost and benefit analysis should be undertaken.
• The final step involved in zero-based budgeting is concerned
with selected, approving decision packages and finalizing the
budget.
ADVANTAGES OF ZBB:
• Efficient allocation of resources, as it is based on needs and
benefits.
• Drives managers to find cost effective ways to improve
operations.
• Increases staff motivation by providing greater initiative and
responsibility in decision-making.
• Increases communication and coordination with the
organization.
DIS-ADVANTAGES OF ZBB:
• Difficult to define units and decision packages, as it is time-
consuming and exhaustive.
• Forced to justify every detail related to expenditure. The
Research & Development (R&D) department is threatened
whereas the production department benefits.
• Honesty of the managers must be reliable and uniform.
CONCLUSION:
• Therefore, it is concluded that zero-based budgeting
is a revolutionary concept and is relatively a new
management tool for planning and control of
activities, It involves people at all levels in the
organization and promotes team spirit.
THANK YOU!