Q. Explain Zero Base Budget?

Zero base budgeting can be defined as -

1) An operating planning and budgeting process which requires each manager to justify his entire budget request in detail and shifts the burden of proof to each manager to justify why he should spend any amount. The procedure requires that all activities and operations be identified in decision packages, which will be evaluated and ranked in order of importance by systematic analysis.

2) In most literal sense, Zero base budgeting implies constructing a budget without any reference to what has gone before, based on a fundamental re-appraisal of purposes, methods and resources.

3) Zero base budgeting is a technique/management tool which provides a systematic method for involving all operations and programmes current or new, allows for budget reduction and allows re-allocation of resources from low priority programme.

Budget making under Zero base budgeting involves the following: -

i) Identification of Organization's structures management, decision units and objectives.

ii) Formulation and development of decision packages.

iii) Review and prioritization of decision packages.

iv) Allocation of resources for the chosen decision packages i.e. preparation of budget.