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

Money market mutual fund, Money Market Mutual Fund Even as the Mutual F...

Money Market Mutual Fund Even as the Mutual Funds show a promise of becoming a major instrument of household savings, another concept which is being talked about and waiting to

Medium-term notes (mtns) , Medium-term notes are debt instrumen...

Medium-term notes are debt instruments that can be offered continuously to an investor. An agency of the issuer offers these; and these are avai

What is cash credit, Q. What is Cash Credit? A cash credit is an arrang...

Q. What is Cash Credit? A cash credit is an arrangement by which a bank allows his customer to borrow money up to a certain limit against some tangible securities or guarantees

Case study - credit-linked notes, Case Study - Credit-Linked Notes Cred...

Case Study - Credit-Linked Notes Credit linked notes are assets issued by financial institutions which have exposure to the credit risk of a reference Issuer . These notes pay

Federal funds rate, Federal Funds Rate The interest rate that Amer...

Federal Funds Rate The interest rate that American banks that have funds in excess of the needs dictated by the Federal Reserve use to make overnight loans to banks whose

Determine the movements in working capital, Movements in working capital ...

Movements in working capital The year-end balances of trade, inventories and other receivables and payables are taken for current year-end as well as last year-end statement

Explain the nature of a concessionary loan, What is the nature of a concess...

What is the nature of a concessionary loan and how is it handled in the APV model? A concessionary loan is a loan that is provided by a governmental body at below the normal ma

Capital investment plans , Report based on Capital Investment Plans   ...

Report based on Capital Investment Plans   To analyze the capital investment plans of Hatsun Agro Products Limited (HAPL) we shall look at the capital expenditure of HAPL in

Market efficiency, Market Efficiency Though there are various markets p...

Market Efficiency Though there are various markets present in the financial system, the ease with which the transfer of funds take place depends on the level of efficiency pres

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