kayode10
VIP Contributor
Zero-based budgeting (ZBB) is a method of budgeting where all expenses must be justified for each new period, as opposed to traditional budgeting methods, where incremental adjustments are made to the previous period's budget.
This imples that each expense is evaluated from scratch, without considering what was spent in the previous period. ZBB is used to control costs and optimize resource allocation.
The ZBB process typically involves the following steps and you need to take note of each of them :
1 Identify and prioritize activities: The first step is to identify and prioritize the activities that the organization wants to undertake in the upcoming period. This involves understanding the organization's goals and objectives and evaluating which activities will help achieve them.
2. Evaluate costs: Next, the costs associated with each activity are evaluated. This includes all costs, such as labor, supplies, equipment, and overhead.
3. Assess alternatives: Alternative ways of performing the activities are assessed, such as outsourcing, automation, or process improvements. These alternatives are evaluated based on their costs and their impact on the organization's goals.
4. Develop the budget: Based on the activities, costs, and alternatives, a budget is developed for the upcoming period. This budget is a bottom-up approach, meaning that it starts at zero and includes only the activities and expenses that are justified.
5. Monitor and adjust: Once the budget is developed, it is monitored throughout the period to ensure that actual expenses are in line with the budget. Adjustments are made as needed to ensure that the organization stays on track to achieve its goals.
Zero-based budgeting is often used in industries that are cost-sensitive, such as manufacturing, retail, and service industries. It can also be useful for non-profit organizations that rely on donations and grants. ZBB can help organizations optimize their resource allocation and control costs, leading to improved profitability and efficiency
This imples that each expense is evaluated from scratch, without considering what was spent in the previous period. ZBB is used to control costs and optimize resource allocation.
The ZBB process typically involves the following steps and you need to take note of each of them :
1 Identify and prioritize activities: The first step is to identify and prioritize the activities that the organization wants to undertake in the upcoming period. This involves understanding the organization's goals and objectives and evaluating which activities will help achieve them.
2. Evaluate costs: Next, the costs associated with each activity are evaluated. This includes all costs, such as labor, supplies, equipment, and overhead.
3. Assess alternatives: Alternative ways of performing the activities are assessed, such as outsourcing, automation, or process improvements. These alternatives are evaluated based on their costs and their impact on the organization's goals.
4. Develop the budget: Based on the activities, costs, and alternatives, a budget is developed for the upcoming period. This budget is a bottom-up approach, meaning that it starts at zero and includes only the activities and expenses that are justified.
5. Monitor and adjust: Once the budget is developed, it is monitored throughout the period to ensure that actual expenses are in line with the budget. Adjustments are made as needed to ensure that the organization stays on track to achieve its goals.
Zero-based budgeting is often used in industries that are cost-sensitive, such as manufacturing, retail, and service industries. It can also be useful for non-profit organizations that rely on donations and grants. ZBB can help organizations optimize their resource allocation and control costs, leading to improved profitability and efficiency
