The document discusses budgeting and zero-based budgeting (ZBB). It defines a budget as a management plan that quantifies expected incomes, expenses, and financial position for a specific period. Budgets are usually short-term, expressed quantitatively, and reflect policies to be followed. ZBB differs in that it requires justifying all budget items from scratch rather than relying on previous budgets. It aims to eliminate unnecessary activities through intensive review. While time-consuming, ZBB induces cost-consciousness and focus on objectives. The methodology involves defining decision units and packages, identifying objectives, costs, and benefits, ranking alternatives, and finalizing through negotiation.

1. BUDGETING
 A statement prepared in quantitative or monetary
terms for a specific period for a policy to be
pursued for achieving objectives
 Quantifies mgt expectations regarding future
incomes, expenses and financial position.
 Anthony : “ Budget is a mgt plan, with an implicit
assumption that positive steps will be taken to make
actual event s correspond to the plans.”

2. Characteristics of Budgets
Usually short term
Prepared prior to the specific period
Reflect policies to be followed
Expressed in quantitative and monetary
terms
It is a mgt commitment
Different from strategic planning and
forecasting

3. Purpose / Advantages
 Compels mgt to plan
 Fine tuning with strategic plans
 Helps to assign responsibility
 Basis for performance evaluation
 Promotes communication and co-ordination
 relieves the top management from day-to-day
intervention and botheration as it can look only into
activities that are outside the budget

4. Pre - requisites
 Clear org structure
 Proper strategic planning
 Consistency in policies and objectives
 Accurate MIS
 Budget period
 Proper maintenance of record

5. Procedure
• Organization : Budget Department and Budget
Committee
• Issuance of guidelines
• Initial budget proposal – importance of key
factor
• Negotiation
• Review and approval
• Budget revisions
• Regular systematic updation
• revisions under special circumstances

6. TYPES OF BUDGETS
Based on
area
covered
Based on
capacity
utilization
Based on
Time
period
Based on
approach
Based on
method
Master
Budget
Functi-onal
Budget
Capital
Budget
Fixed
Flexible
Short
term
Long
term
Top
down
Bottom
up
Incremen
-tal
ZBB

7. ZBB – ZERO BASE
BUDGETING
 In Incremental budgets , the starting point is
the sales forecast
 All expenses are then adjusted according to
sales, and the budget is finalized
 Hence current budget is based on the
previous years budgets
 In contrast, ZBB starts with the base zero.

8. ZBB…….
 ZBB aims at re-evaluating all activities to see
if some of them should be :
Eliminated
Funded
Increased
Kept at the same level

9. ZBB………
• ZBB starts the budget from the scratch (de novo)
• Managers are required to justify the items with proper
bases
• Thus ZBB is an intensive review of the budgetary
allocations
• It is a good way of doing budgeting and can eliminate a
lot of waste. It induces cost consciousness and increases
focus on objectives.
• However it demands some time, energy and qualified
managers to conduct it.

10. ZBB : METHODOLOGY
1. Defining DU ( Decision Units)
2. Defining objectives for each DU
3. Identifying DPs (Decision Packages) : each
DP includes description of the activity, its
benefits, costs, alternative ways,
consequences of non funding and measure
of performance

11. Methodology…………
4. Ranking of alternative DPs
5. Forwarding the ranked DPs to top mgt
6. Negotiation and finalization