Zero-based budgeting is an alternative way of creating a budget. Unlike incremental budgeting, where dollar amounts are added to or subtracted from last year’s budget numbers, zero-based budgeting starts all expenditures at zero. Instead of simply justifying changes to a line item, budgeting managers must justify all expenditures. > Limitations or Criticisms of Zero-Based Budgeting **Time-Consuming:** Zero based budgeting is a very time-intensive exercise for a company or a government funded entries to do every year as against incremental budgeting, which is far easier method. **High Manpower Requirement:** Making an entire budget from the scratch may require involvement of a large number of employees. Many departments may not have an adequate time and human resource for the same. **Lack of Expertise:** Explaining every line item and every cost is a difficult task and requires training the managers. Conclusion: Zero based budgeting aims at reflecting true expenses to be incurred by a department or a state [in case of budget making by government. Although time-consuming, this is a more appropriate way of budgeting. At the end of the day, it is a company’s call as whether it wants to invest time and manpower in the budgeting exercise to provide more accurate numbers or go for an easier method of incremental budgeting. **Documentation**:Zero-based budgeting requires paperwork to justify the inclusion of every item that goes into a budget. Additionally, the manager preparing the budget must prepare documentation ranking each budget item according to its importance and cost. This considerable amount of documentation passes to higher-level managers who review the paperwork and have the authority to eliminate budget items they deem not important or too costly
**LIMITATION OF ZERO BASED BUDGETING** ZBB requires skilled and trained managerial staff ZBB is time consuming as well as costly ZBB faces various operational problems during the implementation of such technique. ZBB requires full support of top management. Thanks
Hii Uma > Limitation of zero based budgeting Zero based budgeting The Objective of Zero Based Budgeting is to “reset the clock” each year. Zero Based Budgeting implies that managers need to build a budget from the ground up, starting at zero. ZBB is to reevaluate and reexamine all programs and expenditures for each budgeting cycle by analyzing workload and efficiency measures to determine priorities or alternative levels of funding for each program or expenditure. limitation of zero based budgeting --- 1. Increased paper work. --- 2. Cost of preparing many packages. --- 3. Subjective ranking. --- 4. More emphasis on short term benefits and Qualitative benefits are ignored. --- 5. Small organization cannot afford it. --- 6. The identification of decision units and decision packages creates number of problems for the organization. --- 7. The process of zero base budgeting requires experiences, intelligence, expertise, and continuous training on the part of executives. Thus , it is not suitable for an ordinary organization. Thanks
Dear Uma Zero-based budgeting is an alternative way of creating a budget. Unlike incremental budgeting, where dollar amounts are added to or subtracted from last year’s budget numbers, zero-based budgeting starts all expenditures at zero. Instead of simply justifying changes to a line item, budgeting managers must justify all expenditures. LIMITATIONS: 1 . Documentation Zero-based budgeting requires paperwork to justify the inclusion of every item that goes into a budget. Additionally, the manager preparing the budget must prepare documentation ranking each budget item according to its importance and cost 2 . Training For successful implementation, managers and staff at all levels must clearly understand the zero-based budgeting process. This involves the training of anyone who will be involved in the budget process so that the concepts of zero-based budgeting are clearly understood. Budgeting managers require training in the justification process. All staff members must be committed to the process for it to work properly. 3 . Justification Process It can be difficult to justify every detail for a budgeted item. The process is tiring and time consuming and it may not be practical or feasible to justify every expense. Because of this, it is typical for the research and development departments to lose budget dollars because future developments are difficult to foresee. Production departments often benefit. It can also be difficult to justify a line item because more managers are involved in the decision making process. 4 . Frequency It takes more time, and therefore more money, to prepare a zero-based budget as compared to an incremental budget. While a budget is typically reviewed on an annual basis, it may be too costly and too time consuming for a small company to do a zero-based budget annually.