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Unit 10: Strategy Implementation

justify the budget requests. ZBB is, therefore, a type of budget that requires managers to rejustify Notes
the past objectives, projects and budgets and set priorities for the future. It amounts to recalculation
of all organisational activities to see which should be eliminated or funded at a reduced or
increased level.

Capital Budgeting

Capital Budgeting techniques can be used for long-term commitment of resources, such as
capital investments in mergers, acquisitions, joint ventures, and setting up of new plants etc.
Various techniques like payback period, net present value, internal rate of return, etc. can be
used to find which investments would earn maximum returns.

Operating Budgets

Operating budgets are necessary for more routine resource allocation for conducting operations.
There are two types of systems:

1. Fixed budgeting system: This system commits resources based on activity levels. In this
type of budgeting, there may be a tendency to retain the committed resources even if the
activity levels are not being achieved, thus depriving other divisions of the resources,
which have a better potential.
2. Flexible budgeting system: This system provides for transfer of funds from one unit to
another if a fall is expected in actual activity level in a particular unit, thus ensuring better
resource utilization. But this system has the disadvantage of encouraging non-seriousness
about budgetary allocations.

Did u know? What are the different types of routine budgets?
1. Operating budget specifies materials, labour, overheads and other costs.
2. Financial budget projects cash receipts and disbursements.

3. Sales budget specifies sales revenues and selling, distribution and marketing costs.
4. Expenses budget projects expenses not carried out in other budgets.

10.5.3 Criteria for Resource Allocation Process

In large, diversified companies, the corporate office plays a major role in allocating resources
among various strategies proposed by its operating units or divisions. In many cases, product
groups, business units or functional areas may bid for funds to support their strategic proposals.
There are three criteria which can be used when allocating resources.

1. Contribution towards fulfillment of organisational objectives: At the centre of the
organisation, the resource allocation task is to steer resources away from areas that are
poor at delivering the organisation’s objectives and towards those that are good at
delivering the organisation’s objectives.

2. Support of key strategies: In many cases, the problem with resource allocation is that the
requests for funds usually exceed the funds normally available. Thus, there needs to be

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