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

Why iceq go beyond icq, ICEQ'sgo beyond ICQ's Discover whether erro...

ICEQ'sgo beyond ICQ's Discover whether error or fraud is possible. Concentrates on significant frauds or errors which might be possible and so only a handful of key con

Leverage, EVALUATE THE IMPORTANCE OF LEVERAGE IN FINANCIAL MANAGEMENT OF SM...

EVALUATE THE IMPORTANCE OF LEVERAGE IN FINANCIAL MANAGEMENT OF SMALL SCALE COMPANY

How to calculate present value?, Illustration  Vishal Mehta & Co....

Illustration  Vishal Mehta & Co., Mumbai issued 7%, 5-year bond on 31st December 2006. The par value of a bond is Rs. 100. This bond pays interest annually and

Explain the benefits of delegation from point of view of yt, YT is the Fina...

YT is the Finance Manager of SBM Magazine Publishing Company. He has recently had his appraisal and was expecting that he would get a excellent review, as he felt that he had met a

Bond's capital gain yield, A 10-year, 12% semi-yearly coupon bond with a pa...

A 10-year, 12% semi-yearly coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,050. The bond sells for $1,050. (Suppose that the bond has just bee

What is maturity, Q. What is Maturity? Maturity: The maturity period of...

Q. What is Maturity? Maturity: The maturity period of the securities should be short, otherwise, the company might suffer losses on account of getting the funds pre-maturely re

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

Trend analysis, Do you guys provide Trend Analysis assignment help? I need ...

Do you guys provide Trend Analysis assignment help? I need writing a report on Trend Analysis and it is about 2000 words. Let me know. I need to buy your solution.

Use of beta to partition risk, Use of Beta to Partition Risk The total ...

Use of Beta to Partition Risk The total risk or variability in earnings can be attributed to two classes of factors: Marketwide factors which create variability in all

Short-term finnce, briefly discuss the three approaches to the short-term f...

briefly discuss the three approaches to the short-term financing problems and examples of each

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