Zero base budgets, Financial Management

Assignment Help:

Zero base budgets: this is a new technique, which was first used by the US Department of Agriculture in 1961. Texas instruments, an MNC, have used it in the private sector.  But, it was Peter.A.Pyhr who had planned its logical basic framework in 1970 and effectively developed, implemented and popularized the use of Zero base budget in private sector. Therefore, he is identifies as the 'father of Zero base budget'. The technique became more popular in USA when the then President of USA, Mr.Carter, in 1979, had issued a mandate asking for the use of Zero base budget throughout the federal government agencies. although it had become Popular in many countries, mainly all the common wealth countries, in India, in spite of the variety of efforts of the Institute of Chartered Accountants of India and the Institute of Costs and Works Accountants of India, it had not achieved popularity.

ZBB has been described by many management experts in several ways.  Few of those definitions are -

'ZBB is a budgeting process and an operating planning which requires each manager to justify his entire budget requests in detail from scratch. every manager says why he should spend money at all. This approach requires that all activities be recognized as decision packages which would be evaluated by systematic analysis ranked in order of importance'

'ZBB is a management tool which offers a systematic method of evaluating all operations and programs, current allows for budget reductions and expansions in a rational manner and allows re-allocation of sources from low to high priority programs'

ZBB is not an old budget with incremental changes, as in the case of an incremental budget.  It begins with a scratch or a zero level and if an item is found to be necessary it is integrated in the new budget, and if it is necessary, how much amount should be budgeted for.

ZBB has several advantages to the management which are as follows:-

1) It offers a solution for all the limitations of traditional budgeting by enabling the top management to focus on main areas, alternatives and priorities of action throughout the organization.

2) It allows the management to concentrate only on essential programs

3) It allows the management to approve departmental budgets on the basis of cost benefit analysis.

4) It aids in identifying wasteful expenditure, and if desired, it can also be used for suggesting alternative courses of action.

5) It can be used for introducing the system of Management by objectives.

Although there are several advantages with this type of budgeting, there are several disadvantages also associated with its use which are as follow -

1) Successful implementation of Zero base budget requires top management support.  Its absence may lead to implementation problems.

2) There are further problems related to the implementation of the ZBB program like fixing of appropriate authority and responsibility for preparing the budgets, fixing the smallest amount of effort required, etc.

3) It is costly and may not suit smaller firms.

4) It is time consuming and may not be applicable in taking emergency decisions.


Related Discussions:- Zero base budgets

Financial statements of home retail group, Briefly outline the necessities ...

Briefly outline the necessities of the UK version of ISA 700/ 750/ 706 and discuss the factors which would manipulate you as the external auditor in forming an opinion on the finan

Analyse the characteristics of good governance, Question 1: "Good Gover...

Question 1: "Good Governance is an ideal. To ensure sustainable development, actions must be taken to work towards this ideal with the aim of making it a reality." With ref

Risk return relationship, RISK RETURN RELATIONSHIP A business operates...

RISK RETURN RELATIONSHIP A business operates in a market environment, which is not within its control. It is exposed to several dangers from the internal with external sources

How amount of financing affecting cost of capital, Q. How Amount of financi...

Q. How Amount of financing affecting cost of capital? Amount of financing as the financing require of the firm become larger , the weighted cost of capital increased several re

Free cash flow, Free Cash Flow Free cash flow presents the amount of ca...

Free Cash Flow Free cash flow presents the amount of cash generated by the existing operations of a corporation and that is not needed for reinvestment in new projects in the f

Explain about working capital funding policy, When considering how working ...

When considering how working capital is funding it is useful to divide assets into permanent current assets, noncurrent assets and fluctuating current assets. Permanent current ass

Operating cycle, Discuss the applicability of the operating cycle to poultr...

Discuss the applicability of the operating cycle to poultry business in Uganda(consider broilers)

Evaluate the critical path, a) Definitions of EST and LFT needed in order t...

a) Definitions of EST and LFT needed in order to explain the differentiation between the terms. The EST of each activity will depend on the LFT of all preceding activities. b) S

Non-interest rate indexes, Generally, an interest rate or an interest...

Generally, an interest rate or an interest rate index is used as a reference rate for However, through financial engineering, issuers have been able to construct

Define the risk of cost of capital, Risk of cost of capital A straight...

Risk of cost of capital A straightforward assumption of traditional cost of capital analysis is that firm's business and financial risk are unaffected by acceptance and financ

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd