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Zero Based Budgeting Essay

700 words - 3 pages

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 unnecessary spending in areas that have been overlooked by using traditional budgets. When managers are discussing the budgets of their departments there will be more meaningful conversation during review sessions (LaFaive, 2003). Because managers need to justify their budgets they will inherently have more pride and heart when it comes to speaking about them. In traditional budgeting managers may feel entitled to increases in their budget because of cost increases unlike zero-based budgeting which reduces this type of mentality (LaFaive, 2003).
Although zero-based budgeting has advantages, just like anything else it also has disadvantages. Time consumption is a disadvantage of this type of budgeting. Because a manager has to start at a zero base and justify each and every expense it can take much longer to develop a budget. With a typical budget a manager bases the budget off of the previous year’s budget. Zero-based budgeting may also be too much for the type of budget being prepared. For example, if a manager...

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