Budgeting Basics and Beyond

Chapter 21. Zero-base Budgeting: Priority Budgeting for Best Resource Allocation

Zero-base budgeting (ZBB) can be used by nonfinancial managers to identify, plan, and control projects and programs. It enhances effectiveness and efficiency. There is a matching of service levels to available resources. Each manager must justify a budget request in detail, beginning with the zero balance. It can lower production, service, and operating costs.

ZBB is a priority form of budgeting, ranking activities such as products and services. It may be used by managers to review and analyze programs, proposals, activities, and functions to increase profitability, enhance efficiency, or lower costs. ZBB results in the optimum allocation of company resources. There exists an input-output relationship.

ZBB considers the objectives of the activity and how they are to be accomplished. The failure to fund an activity may result in adverse consequences that have to be taken into account. For example, the failure to produce a particular product may adversely effect the sales of related products in the company 's overall product line.

Managers who benefit from using ZBB include production managers, purchase managers, marketing executives, general managers and other administrative staff, engineers, research managers, personnel managers, operations research staff, attorneys, and economists. For example, ZBB can be used by marketing managers to appraise competing alternative product lines, formulate an advertising ...