2. ZERO BASE BUDGETING
Zero base budgeting is one of the renowned managerial tool,
developed in the year 1962 in America by the Former
President Jimmy Carter.
The Zero base budgeting considers the current year as a new
year for the preparation of the budget but the yester period is
not considered for consideration.
The future activities are forecasted through the zero base
budgeting in accordance with the future activities.
3. TRADITIONAL BUDGETING VS
ZERO BASE BUDGETING
Basic difference Traditional Budgeting
Zero Base Budgeting
Emphasis
It is accounting oriented;
emphasis on “How Much”
It is more decision oriented;
emphasis on “Why”
Approach
It is monitoring towards the
expenditures
It is towards the
achievement of objectives
Focus
To study the changes in the
expenditures
To study the cost benefit
analysis
Communication
It operates only Vertical
communication
It operates in both
directions horizontally and
vertically
Method
It is based on the extrapolation Its decision package is
i.e. from the yester figures
totally
future projections are carried
based on the cost benefit
4. STEPS INVOLVED ZERO BASE
BUDGETING
The very first step is to prepare the Zero Base Budgeting is to
enlist the objectives.
The extent of application should be decided in the next phase of
the ZBB.
The next important stage is to prioritize the activities.
The Most important step involved in the process of ZBB is cost
benefit analysis.
The final step is to select, approve the decision packages and
finalize the budget.
5. MAIN FEATURES OF ZBB
All budget items both old and newly proposed are considered
totally afresh.
Amount to be spent on each budget item is to be
totally
justified.
Department objectives are linked to corporate goal.
The main stress in not on „how much‟ a department will spend
but on „why‟ it need to spend.
Manager at all levels participate in ZBB process and they have
6. BENEFITS OF ZERO BASE
BUDGETING
It acts as guide for the management to allocate the resources
more accurately depends upon the priority for an effective
implementation.
It enhances capability of the managers who prepares the
budget for future action.
It paves way for optimum utilization of resources available.
It
is
dome
shaped
organizational goals.
only
towards
the
achievement
of
7. APPLICATION OF ZBB
The practical application of ZBB involves the use of the
“Decision Package”. All budgetary procedures involve an
identification of organizational objectives.
In the context of these objectives, ZBB involves three stages:
1. Identification of decision units.
2. Development of decision package.
3. Review and ranking of decision packages.
