Lack of Expertise: Providing an explanation for every line item and every cost is a problematic task and requires training for the managers. Time-Consuming: This Zero-based budgeting approach is a highly time-intensive for a company to do annually as against incremental budgeting approach, which is a far easier method. Many departments may not have adequate human resource and time for the same. Budget under this concept is planned and prepared from the scratch and require the involvement of a large number of employees. High Manpower Turnover: The foundation of zero-based budgeting itself is a zero. Reduction in redundant activities: This approach leads to identify optimum opportunities and more cost-efficient ways of doing things by eliminating all the redundant or unproductive activities Zero-based budget compensates the weakness of incremental budgeting of budget inflation.Ĭoordination and Communication: Zero-based budgeting provides better coordination and communication within the department and motivation to employees by involving them in decision-making. Difference between Zero-based budgeting & Traditional BudgetingĮfficiency: Zero-based Budgeting helps a business in the allocation of resources efficiently (department-wise) as it does not look at the previous budget numbers, instead looks at the actual numbersīudget inflation: As mentioned above every expense is to be justified. If a particular expense fails to benefit the business, the same should be axed from the budget. You can ask your employees what kind of expenses the business will have to bear and figure out where you can control such expenses. To create a zero base budget involvement of the employees is required. The primary objective of zero-based budgeting is the reduction of unnecessary cost by looking at where costs can be cut. With this budgeting approach, you need to justify each and every expense before adding it to the actual budget. Zero-based budgeting starts from zero, rather than a traditional budget that is based on previous budgets. As the name says “Zero-based budgeting” is an approach to plan and prepare the budget from the scratch.
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