Zero-Based Budgeting

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Unlike traditional budgets, zero-based budgeting requires the justification of each and every expense outlined in the budget. Zero based budget planning starts from the zero base line and each element of the budget is analyzed. Managers or department heads, if a government entity, will justify the reasoning behind their budget request. Most budgets are incremental which automatically increases the previous year’s budget. Depending on the review of the budget a department may or may not get a budget increase. This type of budget planning has both advantages and disadvantages but in the long run, if planned and properly conducted, will prove to be a more valuable way of preparing a budget. Businesses who have adopted the zero-based budget approach generally reported improvement and either saved money, improved services, or both (LaFaive, 2003).

Zero-based budgeting carries many advantages. An important advantage of zero-based budgeting is it will cause a manager or department head to be more cognoscente of their financial requirements of their department. This will eliminate un...

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