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

Determining the call option value, The effective maturity of a ...

The effective maturity of a callable bond can be anywhere between the first call date and its maturity date due to the presence of the call feat

ABF, HOW TO CALCULATE ASSESSED BANK FINANCE

HOW TO CALCULATE ASSESSED BANK FINANCE

Apv capital budgeting is use for foreign capital expenditure, What creates ...

What creates the APV capital budgeting framework useful for analyzing foreign capital expenditures? The APV framework is a value - additivity method. Since international projects

Semi-strong-form of efficiency, Semi-Strong form level of Efficiency This...

Semi-Strong form level of Efficiency This level states that share prices reflects all available public information. (past and present information). If the market has achieved thi

Return on common equity finance basics, At the end of the fiscal year endin...

At the end of the fiscal year ending June 30, 2003, Microsoft reported common equity of $64.9 billion on its balance sheet, with $49.0 billion invested in financial assets (in the

Control ratios, Control ratios: Three important ratios are usually used by...

Control ratios: Three important ratios are usually used by the management to find out whether the variations from budgeted results are unfavorable or favorable.  These ratios are

What is lending system, Q. What is Lending System? Under the note lendi...

Q. What is Lending System? Under the note lending system, the borrower takes a loan, usually of 90 days Duration, against a promissory note. The loan may be renewed or retired

Financial management, DEFINITION OF FINANCIAL MANAGEMENT The term finan...

DEFINITION OF FINANCIAL MANAGEMENT The term financial management has been described by management experts in several ways reflecting the duties and responsibilities of a financ

Determine that the cost of equity is zero or not, If dividends paid to comm...

If dividends paid to common stockholders are not legal obligations of a corporation, is the cost of equity zero?  Describe your answer. Even though common stockholders do not com

Explain about the non-convertible debentures, Expalin about the Non-Convert...

Expalin about the Non-Convertible Debentures (NCDs) NCDs are plain debenture securities issued by corporations. They are normally medium term in nature, maturing between 1 to 8

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