2. Zero Based Budgeting
• New technique designed to revitalise budgeting
• Used by US Dept. of Agriculture in 1961
• Peter A. Pyhrr is known as the father of “0”
budgeting
3. Meaning:
• The technique suggests that an organisation
should not only make decision about the
proposed new programs but it should also, from
time to time, review the appropriateness of the
existing programmes.
4. Definition:
• “An operating planning and budgetary process
which requires each manager to justify his entire
budget requests in detail from scratch (zero).
Each manager states why he should spend any
money at all”.
5. Process:
• Determining the objectives of budgeting.
• Determining the extent to which the zero based
budgeting is to be introduced.
• Development of decision units
• Development of decision packages
• Review and ranking of decision packages
• Preparation of budgets.
6. • Decision units: refers to units regarding which cost
analysis will be done to arrive at a decision whether
they should be allowed to continue or should they be
dropped.
• Decision packages: it is a set of documents which
identifies and describes activities of the decision
units in such a way that the management can
evaluate and rank them against other activities
competing for limited resources and decide whether
to approve or disapprove them.
7. Advantages:
• It provides the organisation with a systematic
way to evaluate different operations and
programmes.
• It ensures that every programme undertaken by
the managers is essential for organisation and is
being performed in the best possible way.
• It enables the management to approve
departmental budgets on the basis of cost
benefit analysis.
8. • It helps in identifying areas of wasteful
expenditure and also used for suggesting
alternative action.
• It links budgets with the corporate objectives.
9. Web enabled budgeting:
• Forecaster package:
• Helps in seamlessly manage the planning and
budgeting process.
• Authorize users from each functional areas
through intranet.
• Security on the system is tight.
• Simplified functionality.
• Human resource budgeting and planning.
• Helps in what if analyses.
10. Kaizen budgeting:
• It incorporates continuous improvement
anticipated during the budget period into budget
numbers.
• Many companies that have cost reduction as a
strategic focus, including General
Motors, Citizens Watch and Toyota in Japan, use
kaizen budgeting to continuously reduce costs.
11. Activity Based Budgeting:
• It focuses on the budgeted cost of the activities
necessary to produce and sell products and
services.
12. • To attain the goals described in a budget, a company
must coordinate the efforts of all its employees.
• Responsibility center: is a part, segment or sub
unit of an organization whose manager is
accountable for a specified set of activities. Such as
cost center, revenue center, profit
center, investments.
• Responsibility accounting: is a system that
measures the plans, budgets, actions and actual
results of each responsibility center
Budgeting and responsibility accounting
