The zero based budgeting system is a budgeting technique used for business decision making, and the planning and control of the operations. The zero based budgeting takes in to account the previous level of expenditure in a budget as well and reviews each function interns of all its expenses. The review is based on approving the expenses based on proper justification instead of simply incrementing the expenses. The Zero based approach is for justifying the expenses in the company and its operations which are to be approved by either the management of the production division. This system tends to support the activity based costing system as well.
The advantages of the zero based budgeting system pertain to efficient allocation of resources which are determined on the basis of the needs, the drive provided to the management for improving operations, detection of budgets that are inflated, increases staff motivation while also increasing the communication and the coordination in the business. The process also lets the company decide upon the need for project and business process outsourcing and tends to eliminate waste in the operations through eliminating the not required business processes. The limitations that pertain to zero based budgeting include that it is difficult to define the decision units, it is very time consuming and exhaustive as well as requires the business to justify and go over every detail of the expenses. Additionally with the zero based budgeting method it also becomes important to train the managers as well as well as empower them to take decisions on their own.
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