Date post: | 15-Jul-2015 |
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Definition – Zero Based BudgetDefinition – Zero Based Budget
Saturday, December 21, 2013 2
- starts from a "zero base" -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.
Unique feature - ZBBUnique feature - ZBB
Saturday, December 21, 2013 3
“Suppose we are to start our business from scratch, on what activities would
we spent out money and to what activities would we give the highest
priority?”
It tries to help management answer the
question,
ZBB - OutlineZBB - Outline
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Peter A. Pyhrr is the Godfather of
zero-base budgeting
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Before leapt into ZBB, let us have known about
Traditional Incremental/ Historical Budget
Traditional Budgeting vs Zero Base Budgeting
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 i.e. from the yester figures future projections are carried out
Its decision package is totallybased on the cost benefit analysis.
Disadvantages of ZBB
Difficult to complete review of all the expenditure within a limited timeframe.
Loss of long term planning
(due to planning for every
year) Not possible for depts like R&D etc, with intangible outputs.
Costly and complex method.