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Zero Base Budgeting

Zero-based budgeting (ZBB) is a method of budgeting where all expenses must be justified for each new period, starting from zero, regardless of past budgets. It was first proposed by Peter Pyhrr at Texas Instruments in 1969. The technique was introduced to the state of Georgia by then-governor Jimmy Carter. ZBB involves identifying decision units, preparing decision packages, ranking packages via cost-benefit analysis, and allocating funds based on the resulting pyramid ranking system. Advantages include efficient allocation, cost effectiveness, and identifying waste and mission. Disadvantages are difficulty defining decision units and packages and increased paperwork.

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Kavita Sen Gupta
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89 views11 pages

Zero Base Budgeting

Zero-based budgeting (ZBB) is a method of budgeting where all expenses must be justified for each new period, starting from zero, regardless of past budgets. It was first proposed by Peter Pyhrr at Texas Instruments in 1969. The technique was introduced to the state of Georgia by then-governor Jimmy Carter. ZBB involves identifying decision units, preparing decision packages, ranking packages via cost-benefit analysis, and allocating funds based on the resulting pyramid ranking system. Advantages include efficient allocation, cost effectiveness, and identifying waste and mission. Disadvantages are difficulty defining decision units and packages and increased paperwork.

Uploaded by

Kavita Sen Gupta
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT or read online on Scribd
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ZERO BASE

BUDGETING(ZBB)
It was proposed first time by PETER PAYAL
at Texas instruments, a world leader in digital
signal processing and analog technologies
based in the US, in 1969.

This technique was introduced in the


budgeting in the state of Georgia byMr.Jimmy
Coster who was then the governor of that
state.
.

A method of budgeting in which all


expenses must be justified for each
new period. Zero-based budgeting
starts from a "zero base" and every
function within an organization is
analyzed for its needs and costs.
Budgets are then built around what is
needed for the upcoming period,
regardless of whether the budget is
higher or lower than the previous one.
STEPS IN ZERO BASE:

1. Identification of decision units.

2. Preparation of decision packages.

3. Ranking of decision packages based on


Cost benefit analysis.

4. Allotment of funds based on the above


Resulting by following pyramid ranking
system.
ADVANTAGES OF ZERO BASE
BUDGETING:

Efficient allocation.
Cost effective ways.
Detects inflated budgets.
Increases staff motivation.
Increases staff communication an coordination.
Estimates wastage.
Identifying the mission.
DISADVANTAGES OF ZERO BASE
BUDGETING:

Difficult to define decision units.


Forced to justify every detail related to
expenditure.
Necessary to train managers.
Compressing the information.
Screwing of the results.
Paper work increases due to large number
of decision packages.
Cost of preparing the various packages may
be very high in large firms.
.
ZERO BASE TRADITIONAL

 Each expenditure to be  Sanctioned based on


justified. previous years
expenditure.
 No balance to be
carried forward. 
Past sales an
expenditure trends are
 Activities ranked
assumed to be
according to priority.
continued.
 Previous years balance
are carried forward.
FOR EXAMPLE:
If there are inaccuracies in the previous years
budge, they are carried forward to the next
year or if the activities do not show a major
impact on the budget,they are continued even
if they are not contributing to the performance
of the organization.

On the other hand ,in ZERO BASE


BUDGETING the base is taken as zero and
the budget is devised as for a new venture.
Why this practice is
not so successful?
Zero based budgeting vastly over
estimates man's ability to calculate.

Manipulation of ranking is frequent.

Implementation takes great deal of time,


which limits staff's ability to perform.

Forces managers to establish a


preference for effectiveness, efficiency, or
equity as they try to rank decision
packages.This makes ranking process
THANK

YOU

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