Explain how zero-base budgetinng differs from traditional budgeting?

Answer 1

Zero-based budgeting basically is that way of planning and decision-making which serves as the reverse of the working process as it goes in traditional budgeting. When we talk about traditional incremental budgeting, departmental managers justify only increases over the previous year budget and what has been already spent is automatically sanctioned. It focuses on what the managers tend to spend rather on what resources they need. It fails to identify wastes, incoming workloads and cost drivers; it does not support continuous improvement and appears to have general lack of ownership and buy. No reference is made to the previous level of expenditure. On the other hand, in zero-based budgeting, every department function is reviewed quite thoroughly and all expenditures must be approved of they are to be increased. Zero-based budgeting requires the budget request to be well and truly justified along with complete detail by each division manager starting from the zero-base. The zero-base is unconcerned to whether the total budget is increasing or decreasing. It can lower costs by avoiding blanket increases or decreases to a prior period's budget. However, it is a time-consuming process that takes much longer than traditional, cost-based budgeting. The practice also favors areas that achieve direct revenues or production; their contributions are more easily justified than in departments such as client service and research and development.

Answer 2

Zero-based budgeting is a technique of planning and decision-making which reverses the working process of traditional budgeting. In traditional incremental budgeting, departmental managers justify only increases over the previous year budget and what has been already spent is automatically sanctioned. No reference is made to the previous level of expenditure. By contrast, in zero-based budgeting, every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases.[1] Zero-based budgeting requires the budget request be justified in complete detail by each division manager starting from the zero-base. The zero-base is indifferent to whether the total budget is increasing or decreasing.