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Zero-Based Budgeting (ZBB) - Budgetary Control, Cost Management Video Lecture | Cost Management - B Com
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FAQs on Zero-Based Budgeting (ZBB) - Budgetary Control, Cost Management Video Lecture - Cost Management - B Com
| 1. What is zero-based budgeting (ZBB)? |  |
Zero-based budgeting (ZBB) is a budgeting technique where all expenses must be justified and approved for each new period, regardless of the previous budget. Unlike traditional budgeting methods, ZBB requires managers to build their budgets from scratch, starting at zero. This approach aims to eliminate the tendency to automatically increase budgets based on previous years' spending levels.
| 2. How does zero-based budgeting contribute to budgetary control? | |
Zero-based budgeting contributes to budgetary control by providing a more detailed and accurate view of an organization's expenses. Since all expenses must be justified and approved, it allows managers to closely examine each cost element and determine its necessity and relevance to the organization's objectives. This level of scrutiny helps in identifying and eliminating unnecessary or inefficient expenses, ultimately improving budgetary control.
| 3. How does zero-based budgeting facilitate cost management? | |
Zero-based budgeting facilitates cost management by requiring managers to review and justify all expenses. This process helps in identifying areas of inefficiency or excessive spending, allowing for targeted cost reductions. By starting with a zero base, managers are encouraged to explore alternative approaches, cost-saving measures, and resource allocation strategies to optimize spending and achieve cost management objectives.
| 4. What are the advantages of zero-based budgeting for businesses? | |
Some advantages of zero-based budgeting for businesses include:
1. Improved cost control and reduction: ZBB helps in identifying unnecessary expenses and finding cost-saving opportunities.
2. Enhanced resource allocation: By starting from zero, ZBB encourages managers to allocate resources based on priorities and objectives.
3. Increased accountability: With each expense requiring justification, ZBB promotes accountability among managers for their spending decisions.
4. Better decision-making: ZBB provides a more detailed understanding of costs, enabling informed decision-making and strategic planning.
5. Flexibility and adaptability: ZBB allows adjustments to budgets in response to changing business conditions, ensuring resources are aligned with current needs.
| 5. What are the challenges of implementing zero-based budgeting? | |
Implementing zero-based budgeting can present some challenges, such as:
1. Time-consuming process: Building budgets from scratch can be time-consuming, especially for large organizations with numerous cost centers.
2. Resistance to change: Some employees may resist the shift from traditional budgeting methods to ZBB, as it requires more effort and scrutiny.
3. Complexity: ZBB requires a thorough understanding of the organization's operations and cost drivers to accurately justify expenses.
4. Need for accurate data: ZBB heavily relies on accurate and up-to-date data, which may pose challenges if data systems are not well-integrated or reliable.
5. Managerial judgment: The success of ZBB relies on the judgment of managers in evaluating expenses, which can introduce subjectivity and potential biases.
Text Transcript from Video
the invention of zero based budgeting is
credited to piet Pierre who developed it
while at Texas Instruments in the late
1960s after a Harvard Business Review
article the tool was picked up by the
then Governor Carter to help reduce
government spend in recent years zero
based budgeting is seeing a renewed
interest with large press coverage from
some high-profile applications so how is
zero based budgeting different from more
traditional budgeting in traditional
budgeting managers only evaluate changes
from one period to the next so if you
run the local coffee shop and are
establishing the budget for next year
you would start with the last year's
budget and make changes you know of for
say the increase in wages or maybe the
decreased price on coffee beans this
form of budgeting focuses on cost areas
with variances to the plan and in
certain situations can be quick and
sufficient by contrast zero based
budgeting focuses on what expenditures
are actually necessary to the business
in an upcoming time period irrespective
of what happened in the previous time
and while more time consuming is a more
complete review of expenditure by
questioning and understanding the
required cost in each category managers
can find unnecessary expenditures even
when there was no variance to the
previous year's budget for example if
you had zero variance in your
advertising spend in traditional
budgeting you would not question that
spend and continue to include it in the
budget but in a zero-based budget you
would question what activities are
actually required for advertise and how
much they are expected to cost this
might show you that you need more less
or the same spending in the previous
year but by starting from zero the fact
that you had no
Ariane's to last year's irrelevant zero
based budgeting is a beneficial tool but
also has some limitations in the
upcoming videos we'll share our
perspective on some of the criticisms of
zero based budgeting and how to make the
most of the puzzle
credited to piet Pierre who developed it
while at Texas Instruments in the late
1960s after a Harvard Business Review
article the tool was picked up by the
then Governor Carter to help reduce
government spend in recent years zero
based budgeting is seeing a renewed
interest with large press coverage from
some high-profile applications so how is
zero based budgeting different from more
traditional budgeting in traditional
budgeting managers only evaluate changes
from one period to the next so if you
run the local coffee shop and are
establishing the budget for next year
you would start with the last year's
budget and make changes you know of for
say the increase in wages or maybe the
decreased price on coffee beans this
form of budgeting focuses on cost areas
with variances to the plan and in
certain situations can be quick and
sufficient by contrast zero based
budgeting focuses on what expenditures
are actually necessary to the business
in an upcoming time period irrespective
of what happened in the previous time
and while more time consuming is a more
complete review of expenditure by
questioning and understanding the
required cost in each category managers
can find unnecessary expenditures even
when there was no variance to the
previous year's budget for example if
you had zero variance in your
advertising spend in traditional
budgeting you would not question that
spend and continue to include it in the
budget but in a zero-based budget you
would question what activities are
actually required for advertise and how
much they are expected to cost this
might show you that you need more less
or the same spending in the previous
year but by starting from zero the fact
that you had no
Ariane's to last year's irrelevant zero
based budgeting is a beneficial tool but
also has some limitations in the
upcoming videos we'll share our
perspective on some of the criticisms of
zero based budgeting and how to make the
most of the puzzle
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Dec 23, 2024 Last updated |
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