zero based budget

1.  Unlike traditional budgeting approaches, which
begin with drawing up a budget or forecast for the
current year (often based on the previous year’s
budget) and then adjusting it based on a variety of
factors such as inflation, actual spend data, updated
projections, etc.,

2.  the zero based budgeting method wipes the slate
clean every month and requires justification for
every line item. In the zero based budgeting
process, no line item is automatically transferred to
the new budget from the previous month’s

3.  This budgeting method is forward-facing, rather
than relying on historical budget data from last
month, last quarter, or even last year. If traditional
budgeting concerns itself with controls based on
what’s being spent, zero-based budgeting concerns
itself with why each expenditure is being made.

4.  It starts from zero
 Money to be spent needs to be fully justified
 A detailed cost benefit analysis of each programme
is undertaken.

5.  Determination of the objective of budgeting
 Identification of decision units
 Development of decision packages
 Evaluation and ranking of decision packages
 Allocation of resources to decision units and
preparation of budgets

6. Increased paper work.
Cost of preparing many packages.
 Subjective ranking.
 More emphasis on short term benefits
and Qualitative benefits are ignored.
Small organization cannot afford it.

7.  The identification of decision units and decision
packages creates number of problems for the
organization(Decentralized).
 The process of zero base budgeting requires
experiences, intelligence, expertise, and continuous
training on the part of executives. Thus , it is not
suitable for an ordinary organization

8.  Out of date inefficient operations are
identified.
 Allow managers to quickly respond to
changes in external environment.
 It Promotes questioning and challenging
attitudes.

9.  It ensures efficient use of limited resources by allocating
them according to the relative importance of the
programs.
 The annual review of the programs indicates the relative
worth of the programs and thus ensures no programs
continues beyond its productive life.

10.  It helps the management to design and develop cost-effective
techniques for improving operations.
 The corporate objectives can be achieved more successfully
under zero base budgeting.
 The establishment of decision units makes the performance
evaluation system more effective