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Advantages and disadvantages of Zero-base budgeting

The advantages of zero-base budgeting are as follows:

1. It provides a systematic approach for the evaluation of different activities and rank them in order of preference for the allocation of scarce resources.
2. It ensures that the various functions undertaken by the organization are critical for the achievement of its objectives and are being performed in the best possible way.
3. It provides an opportunity to the management to allocate resources for various activities only after having a thorough cost-benefit-analysis. The chances of arbitrary cuts and enhancement are thus avoided.
4. The areas of wasteful expenditure can be easily identified and eliminated.
5. Departmental budgets are closely linked with corporation objectives.
6. The technique can also be used for the introduction and implementation of the system of ‘management by objective.’ Thus, it cannot only be used for fulfillment of the objectives of traditional budgeting but it can also be used for a variety of other purposes.

Disadvantage of ZBB:

1. The work involves in the creation of decision-making and their subsequent ranking has to be made on the basis of new data. This process is very tedious to management.
2. The activity selected for the purpose of ZBB are on the basis of the traditional functional departments. So the consideration scheme may not be implemented properly.
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