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

long-term supermarket projects, Here is currently making investment apprai...

Here is currently making investment appraisals of two potential long-term supermarket projects, A and B. Both projects needs the similar initial investment of £20m. The following r

Capital asset pricing model, Can you draw Capital asset pricing model with ...

Can you draw Capital asset pricing model with example and explain?????

Expalin u.s. dollar weakens in the foreign exchange market, What does it me...

What does it mean when the U.S. dollar weakens in the foreign exchange market? When the U.S. dollar decline in the foreign exchange market one U.S. dollar buys less units of an

State about walk-through tests - auditor, Walk-through tests - Auditor ...

Walk-through tests - Auditor • "Walk-through tests" -That is tracing one or more transactions by accounting system and observing application of internal controls. Rev

Cash flow statements, Cash flow statement: The cash flow statement summ...

Cash flow statement: The cash flow statement summarises the flow of cash into and out of the business over a certain period of time. The cash flow statement measures the liq

Share-based payments and retirement benefits, Applicant should have been we...

Applicant should have been well versed in the calculation of actuarial losses and gains on pensions. It would have been significant to ensure each item affecting liabilities and as

How foreign subsidiary’s financial structure become relevant, Under what ci...

Under what circumstances will the foreign subsidiary’s financial structure become relevant? The subsidiary’s own financial structure will become applicable when the parent firm

#titleEvaluate alternative hedging strategies, Peak Inc. needs to order Can...

Peak Inc. needs to order Canadian raw materials to use in its production process. The Canadian exporter typically invoices Peak in Canadian dollars. Assume that the current exchang

Explain the concept of working capital, Q. Explain the concept of working c...

Q. Explain the concept of working capital. Distinguish between variable and permanent working capital. What is the significance of such distinction in financing working capital req

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