Zero Based Budgeting (ZBB) is a technique of making plans and taking decisions, which overturns the working procedure in traditional budgeting. In case of Zero Based Budgeting, the function of each and every department is analyzed and evaluated in a comprehensive manner, and all expenses increase only after such approvals. When discrepancies arise, Zero Based Budget requires detailed justification from every divisional manager, starting from the lowest levels, called the Zero-base. The Zero-base is however, least bothered about the overall increase or reduction of the budget.
Activities of Zero Based Budgeting:
- Zero Based Budgeting is useful for personal finances, as it describes the budgetary practice and calculates figures on per unit accumulation of money
- Different financial groups prefer Zero Based Budgets, for assured control on useless expenditures. This is precisely why it has retained equal popularity in both public and private commercial sectors, ever since its conceptual inception.
- The preparation of Zero Based Budgeting is supported for the sake of Government Budgets. Here the expenses tend to become uncontrolled, in trying to maintain parity between the spendings of the last and the current years. In other words, the justification of a project on government levels is done by this budgeting procedure.
- Zero Based Budgeting offers an overview of the projects with their previous costs, by dismissing the earlier ones.
What is so beneficial about Zero Based Budgeting:
- Enhances coordination and communication within the enterprise, for positive effects and better output levels
- Provision for more schemes and responsibilities, to further encourage the staffs
- Compels the spending centers to understand their missions and their inter-relationships, for achieving overall goals
- Acts as a driving force for managers to search for cost-effective measure to develop the operations further
- Quick identifications and immediate eliminations of unused and outdated operations
- Recognizing opportunities for financial outsourcings
- Used extensively in the service sectors and departments for easy identification of the outputs
- Helps in the detection of inflationary budgets
- The financial resources are efficiently allocated, on the basis of requirements
Zero Based Budgets: Criticisms
- No proper training of officials on the managerial levels.
- In the micro-management levels, Zero Based Budgeting spends the least amount of time on issues that really affects the development and progress of a company, and meddles with trivial issues, which may or may not have any effect on the operations of the company.
- Forceful justification of all expenditure details is demanded