ZERO-BASED BUDGETING

Zero-Based Budgeting

Zero-Based Budgeting

Introduction

Budgeting is an essential element of the planning and management process. Budgeting is the process that translates corporate intentions into concrete tasks and identifies the resources needed by each manager to run it. This budget increases communication and coordination of the various administrative units, facilitating decision-making and provides a framework for monitoring and performance assessment. All managers are responsible for the preparation of a budget. Since certain departments play an important role in improving the various components of the balance sheet and profit and loss account, it is crucial that they prepare their budgets in a responsible manner. Once budgets are available, it is necessary to analyze the difference between the actual and planned costs (variance) (Brueningsen, 1977). An analysis of variance involves the decomposition of the variance in the individual factors that caused the variance. Managers need to understand the situation, how to break down and analysis of the differences that will help to make the right corrective action.



Theoretical understanding

Zero-Based Budgeting (ZBB)

Zero-base budgeting is a process in which building the budget from a zero-based. It is a new technique of planning and decision making. It reverses the working process of traditional budgeting. Each department is fully functional and checked all the items are rather increased only if approved. ZBB is a technique by which the budget request in detail by each division manager will be justified. The Zero-Base does not matter whether the overall budget is increasing or decreasing (Burrows, 2000).

Benefits of Zero-Based Budgeting

There are so many advantages can be achieved if the zero-based budgeting was implemented, the efficiency in the allocation of resources based on the capabilities and needs name. He urges managers to low-cost opportunity to seek to improve operations. Detect inflated budget and find solutions best suited and avoid wastage and obsolete operations. Most important is to increase communication between different departments.

Disadvantages of Zero-Based Budgeting

There are some disadvantages that have been detected in this type of budget. It has shown some difficulties to define decision or packaging, and it has to be strenuous and time consuming. Training has become mandatory for managers to understand the process as ZBB at every level of business success for them to be understood.

Some hybrid of them, usually report some improvement quantitatively or qualitatively. That is, the process has money, better services, or both saved. In addition to saving money and improving services can increase to zero-budget restraint in developing budgets (Castello, 1973).

According to Michael LaFaive become (2003) "Zero-based budgeting can be useful for shaking up a process that is stale and counterproductive in the course of time. He has offered three serious warnings.

"First, the success of such a change like this hinges strongly on leadership that is dedicated to the task. If this appointed to lead budget reviews are not willing to really evaluate each item in their budget, word got out quickly that this new technology Budgeting is more symbolism than substance. In fact it is on proponents of zero-budgeting established to ...