Budgeting Basics and Beyond

21.1. Zero-base Budgeting Process

ZBB begins with a zero balance and formulates objectives to be achieved. All activities are analyzed for the current year. The manager may decide to fund an existing project at the same level as last year after the review. However, it is most likely that funding will be increased or decreased, based on new information. It is also possible that an alternative way may be used for that project, based on current cost or time considerations.

The ZBB approach sets minimum funding amounts for each major activity (e.g., product, service). Amounts above the minimum level must be fully justified in order to be approved by upper management. Each program, product, or service is looked at each year to determine its benefit. If an activity cannot be supported as having value, it is not funded. The manager is not concerned with the past but rather looks at the current and future viability. The manager, in effect, discards the deadwood. Programs with inefficiencies, waste, and anything that no longer makes financial sense are dropped.

The ZBB process involves:

• Developing assumptions

• Ranking proposals

• Appraising and controlling

• Preparing the budget

• Identifying and evaluating decision units