1. ZERO BASE BUDGETING
Presented by:
TANUJ-11101163
TARUN-11101139
Hj
FROM:-
Haryana school of business
GJUS&T,HISSAR

2. INTRODUCTION
Zero base budgeting (ZBB)is an alternative to
incremental budgeting . ZBB was introduce at
Texas in USA in 1969 by Peter Phyrr , who is
known as the father of ZBB . This is not
based on incremental approach and previous
year’s figures are not taken as the base for
preparing next year’s budget. Instead the
budget figures are developed with zero as the
base , which means that a budget will be
prepared as if it is being prepared for a new
company for the fist time.

3. Historical development of ZBB
ZBB or some modified version of it, has
been used in the private- and public -sectors
for decades. The first known application of
zero-base budgeting was by the U.S
Department of Agriculture in 1962. However,
the general problem of incremental budgeting
that zero-base budgeting attempts to solve
has been recognized from a much earlier
period.
In fact , when Jimmy Carter became the
President of USA , he directed that all federal
government agencies adopt ZBB.

4. DEFINITION
According to C.I.M.A. , London ,ZBB is
defined as “A method of budgeting
where by all activities are revaluated
each time a budget is set .Discrete
levels of each activity are valued and a
combination chosen to match funds
available.”

5. Zero Base Budgeting
Purpose of Zero-Base Budgeting
The Objective of Zero Based Budgeting is to
“reset the clock” each year. The Traditional
incremental budgeting assumes that there is
a guaranteed budgetary base-the previous
year’s level of appropriations -and the only
question is how much of an increment will be
given. Zero Based Budgeting implies that
managers need to build a budget from the
ground up, building a case for their spending
as if no baseline existed- to start at zero.

6. The purpose of ZBB is to revaluate and
reexamine all programs and expenditures
for each budgeting cycle by analyzing
workload and alternative levels of
funding for each program or expenditure.
Through this system, each program is
justified .

7. Application of ZBB
The practical application of ZBB involves the use of
the “Decision Package”. All budgetary procedures
involve an identification of organizational objectives.
In the context of these objectives, ZBB involves
three stages:
1. Identification of decision units.
2. Development of decision package.
3. Review and ranking of decision packages.

8. MAIN FEATURES OF ZBB
All budget items both old and newly proposed
are considered totally afresh.
Amount to be spent on each budget item is to
be totally justified.
Department objectives are linked to corporate
goal.
The main stress in not on ‘how much’ a
department will spend but on ‘why’ it need to
spend.
Manager at all levels participate in ZBB
process and they have corresponding
accountabilities.

9. ADVANTAGES
In ZBB all activities included in the budget
are justified on cost benefit considerations
witch promote more effective allocation of
resources.
ZBB discards the attitude of accepting the
current position in favour of an attitude of
questioning and challenging each item of
budget.
Cost behaviour patterns are more closely
examined.

10. .
In the course of ZBB process inefficient
and loss making operation are identified
and may be removed.
It add psychological push to employees to
avoid wasteful expenditure.
It is an education process and can
promote a management team of talented
and skillful people who tend to promptly
respond to changes in the business
environment.

11. DISADVANTAGES
ZBB leads to an enormous increase in
paper work and results in high cost of
preparing budget every year.
Managers may resist new ideas and
changes. They may feel threatened by
ZBB because all expenditures are
questioned and need to be justified.
In ZBB there is danger of emphasising
short-term gains at the expense of long-
term benefits.

12. .
It may not always be easy to properly rank
decision packages and this may give rise
to conflicts.
For introducing ZBB , managers need to
be given proper training and education
regarding this new concept, its pros and
con and implementation.