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Process 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’.

Process of Zero-base Budgeting:

The process of zero-base budgeting involves the following steps:
1. Determination of a set of objectives is one of pre-requisites and essential step in the direction of ZBB technique.
2. Deciding about the extent to which the technique of ZBB is to be applied whether in all areas of organizations’ activities or only in a few selected areas on trial basis.
3. Identify those areas where decisions are required to be taken.
4. Developing decision packages and ranking them in order of performance.
5. Preparation of budget that is translating decision packages into practicable units/items and allocating financial/resources.

In real terms the Zero base budgeting is simply an extension of the cost, benefit, analysis method to the area of corporate planning and budgeting. It, however, provides a number of advantages to the organizational efficiency and effectiveness.
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