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Characteristics of Zero-base budgeting

ZBB is defined as ‘a method of budgeting which requires each cost element to be specifically justified, as though the activities to which the budget relates were being undertaken for the first time. Without approval, the budget allowance is zero’.

Characteristics of Zero-base budgeting:

1. Manager of a decision unit has to completely justify why there should be at all any budget allotment for his decision unit. This justification is to be made a fresh without making reference to previous level of spending in his department.

2 Activities are identified in decision packages.

3 Decision packages are ranked in order of priority.

4 Packages are evaluated by systematic analysis.

5 under this approach there exist a frank relationship between superior and subordinates. Management agrees to fund for a specified service and manager decision of the decision unit clearly accepts to deliver the service.

6 Decision packages are linked with corporate objectives, which are clearly laid down.

7 Available resources are directed towards alternatives in order of priority to ensure optimum results.
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