ZERO BASE BUDGETING


ZERO BASE BUDGETING (ZBB)


Meaning:
 It is a management technique aimed at cost reduction. It was introduced by the
U. S. Department of Agriculture in 1961. Peter A. Phyrr popularized it. In 1979,
president Jimmy Carte issued a mandate asking for the use of ZBB by the
Government.


ZBB - Definition:


 “It is a planning and budgeting process which requires each manager to justify
his entire budget request in detail from scratch (Zero Base) and shifts the burden
of proof to each manager to justify why he should spend money at all. The
approach requires that all activities be analyzed in decision packages, which are
evaluated by systematic analysis and ranked in the order of importance”. – Peter
A. Phyrr.


It implies that:
→ Every budget starts with a zero base
→ No previous figure is to be taken as a base for adjustments
→ Every activity is to be carefully examined afresh
→ Each budget allocation is to be justified on the basis of anticipated
circumstances
→ Alternatives are to be given due consideration

Advantages of ZBB:
1. Effective cost control can be achieved
2. Facilitates careful planning
3. Management by Objectives becomes a reality
4. Identifies uneconomical activities
5. Controls inefficiencies
6. Scarce resources are used beneficially
7. Examines each activity thoroughly
8. Controls wasteful expenditure
9. Integrates the management functions of planning and control
10. Reviews activities before allowing funds for them.

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