Question

Q. 3. define zero base budgeting. what are the steps involved in this?

Answer 1

Zero-based budgeting (ZBB) is abudgeting process that asks managers to build a budget from the ground up, starting from zero. The idea is to divide organization programs into “packages” and then to calculate costs for each package from the ground up (Zero). Zero-based budgeting (ZBB) has some strong features.

The important steps in ZBB are:

(i) Identification of decision units in order to justify each item of expenditure in their proposed budget.

(ii) Preparation of Decision Packages. Each package is a separate and identificable activity. These packages are linked with corporate objectives.

(iii) Ranking of decision packages based on cost benefit analysis.

(iv) Allotment of funds based on the above resulting by following pyramid ranking system to ensure optimum results.

Decision packages are self contained modules or proposals seeking funds. Each decision package will clearly explain the activity, the need for the item, the amount involved, the benefit of implementing the proposal, the loss that may be incurred, if it is not done etc.