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18:51 NTA UGC NET 2019 By:- Assistant Professor(Ms.)Ashima Negi Candidate For Doctorate ( Ph.D.) UGC NET-Management. CA(I), MBA Finance, BBA, PGDM-Materials Management, NCFM, TQM & ISO 9000, Qs 9000 & Assurance, CCIBL
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18:51 Zero Based Budgeting Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero- based budgeting starts from a "zero base," and 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 each budget is higher or lower than the previous one. a method of budgeting in which all expenses must be justified and approved for each new period. Developed by Peter Pyhrr in the 1970s, zero-based budgeting starts from a "zero base" at the beginning of every budget period, analyzing needs and costs of every function within an organization and allocating funds accordingly, regardless of how much money has previously been budgeted to any given line item.
18:51 ZBB allows top-level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization, where costs can be first grouped and then measured against previous results and current expectations. Because of its detail-oriented nature, zero-based budgeting may be a rolling process done over several years, with a few functional areas reviewed at a time by managers or group leaders. Zero-based budgeting can help lower costs by avoiding blanket increases or decreases to a prior period's budget. It is, however, a time-consuming process that takes much longer than traditional, cost-based budgeting. The practice also favors areas that achieve direct revenues or production, as their contributions are more easily justifiable than in departments such as client service and research and development.
18:51 LTE Zero-Based Budgeting vs. Traditional Budgeting Traditional budgeting calls for incremental increases over previous budgets, such as a 2% increase in spending, as opposed to a justification of both old and new expenses, as called for with zero- based budgeting. Traditional budgeting analyzes only new expenditures, while ZBB starts from zero and calls for a justification of old, recurring expenses in addition to new expenditures. Zero-based budgeting aims to put the onus on managers to justify expenses, and aims to drive value for an organization by optimizing costs and not just revenue.
18:51 Advantages & Disadvantages Accuracy: This type of budgeting help companies to look over every department to make sure they are getting the correct amount of money 1. Efficiency: It helps judge actual need by focusing on current numbers instead of past budgets. 2. 3. Reduction in wasteful spending: It can remove redundant spending by reexamining potentially unnecessary expenditures. Coordination and Communication: It allows for better communication within departments by involving employees in decision-making and budget prioritization 4. Bureaucracy: Creating ZBB within a company can take enormous amounts of time, effort, and analysis that would require extra staff. This could cause the process to be counter productive in cutting costs Corruption: In using ZBB, managers could attempt to skew numbers to make expenditures into vital activities, thus creating a "need" for them. This would cause companies to continue wasting money on things they don't need a. b. Intangible Justifications: This type of budgeting requires departments to justify their budget, which can be difficult on many levels. Departments such as advertising and marketing have to justify expenses they may or may not use in the next year due to the fluctuation of the market. This could cost them profits in the future due to not being able to justify a certain amount. c. d. Managerial Time: ZBB comes at the cost of time and extra training for managers. This means extra time every vear to do the budget, make adjustments, and receive the proper training to understand how to do ZBB Slower Response Time: Due to the amount of time and training is required to do ZBB, managerial staff could be less likely to revise the budget in response to a changing market. This means that it will take longer for a company to move money into departments that need it the most at the time. ZBB could potentially leave gaps in a company because the budget might not react to departments' sudden needs. e.