Page 206 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 9: Budgetary Control

Notes

Notes Traditional Budgeting vs Zero Base Budgeting
Basis of Difference Traditional Budgeting Zero Base Budgeting
Emphasis It is accounting oriented; It is more decision oriented;
emphasis on “How Much” emphasis on “Why”
Approach It is monitoring towards the It is towards the achievement of
expenditures objectives
Focus To study the changes in the To study the cost benefit analysis
expenditures
Communication It operates only Vertical It operates in both directions
communication horizontally and vertically
Method It is based on the extrapolation Its decision package is totally based
i.e from the yester figures on the cost benefit analysis.
future projections are carried
out

Steps involved Zero-base Budgeting

1. The very first step is to prepare the Zero-base Budgeting is to enlist the objectives.
2. The extent of application should be decided in the next phase of the ZBB.
3. The next important stage is to prioritize the activities.

4. The Most important step involved in the process of ABB is cost benefit analysis.
5. The final step is to select, approve the decision packages and finalise the budget.

Benefits of Zero-base Budgeting

1. It acts as guide for the management to allocate the resources more accurately depends
upon the priority for an effective implementation.

2. It enhances capability of the managers who prepares the budget for future action.
3. It paves way for optimum utilization of resources available.
4. It is a technique of utilitarian of the resources with reference to the activity involved.
5. It is dome shaped only towards the achievement of organizational goals.

Criticism of Zero-based Budgeting

1. Non-financial matters cannot be considered for the cost and benefit analysis.

2. Difficulties involved in the process of ranking of the decision packages.
3. It needs more time span for preparation and cost of operations is more and more.

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