Zero budgeting

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Zero budgeting

  1. 1. ZERO BASE BUDGETING PRESENTED BY : Mahesh Sherkhane
  2. 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. 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. 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. 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. 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. 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.
  8. 8. THANK YOU….!!

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