ZERO BASED BUDGETING

“A BUDGET IS JUST A METHOD OF

WORRYING BEFORE YOU SPEND MONEY,
AS WELL AS AFTERWARD.”

-ANONYMOUS
 Historical Background

Introduced by Peter A. Pyher in the year 1970 in

Texas Instrument, USA, defines ZBB as, “Budgeting
all the activities of the organization from scratch or
zero, disregarding trends or historical levels of
expenditure.”
 Concept

A financial management technique for planning and

controlling expenditures.

Image of the word ‘ZERO’.

Identifying the effected areas of economy.

 Definition

“An operating, planning and budgeting process,

which requires each manager to justify his entire
budget requisition detail from scratch(hence zero
base). Each manager states why he should spend any
money at all. This approach requires that all
activities be identified as decision packages, which
will be evaluated by systematic analysis and ranked
in order of importance.”
-By Peter A. Pyher
 THE ZBB PROCESS
Identification
Analysis
Formulation
Allocationofof
Decision
of Decision
Organizational
Resources
Units
Packages

P
re
p
ar
at
io
n
of
D
et
ai
le
d
B
u
d
ge
t
 Process Details

Identification of Decision
Units
Analysis of Decision Units
Formulation of Decision
Packages
 Allocation Of
Organizational Resources
&
Preparation Of Detailed
Budget
 Advantages

Operational Efficiency.
Helps in finding out-of-date and inefficient
operations.
Apt for staff and support areas.
Focus on Analysis and Decision Making.
Optimum Allocation of Scarce Resources.
Psychological Impact.
Increase in involvement of lower and middle level
personnel in the budgetary system.
 Disadvantages

 Functional Orientation Attitude of ZBB.

 Formulation and Ranking of Decision Packages.

 Time and Cost.

 Sometimes employees are not co-operative.

 Comparison

Zero Based Budgeting Traditional Budgeting

Each expenditure to be Sanction based on

justified. previous year’s
No present expenditure.
Justify increase over last
commitment.
year.
No balance to be
Previous year’s balances
carried forward.
are carried forward.
Activities ranked Past sales and
according to priority. expenditure trends are
assumed to be continued.
 Essentials Of ZBB

Communication should be clear.

Tailor-made ZBB.

Areas where ZBB is to be applied should be clear.

Manuals should be prepared.

Training Programs must be organized.

 Conclusion

In the end we can say that, Zero Based

Budgeting(ZBB) is the management tool which
bridges the gap between planning and results.