Question

The term zero-base budgeting (ZBB) was first introduced to the public in a 1970 article by Peter A. Pyhrr in the Harvard Business Review and soon and dropped out of favor, primarily because it was such a laborious process. There are some sign that zero based budgeting is reemerging as health care organization face an increasing competitive environment, seek to implement new enhancement, and cost avoidance activities, and try to capture new market niches. Discuss the advantages and disadvantages of zero-based budgeting. Why it is so unique to the health care industry?

Answer 1

Following are the main advantages of zero base budgeting;

1. This type of budgeting helps in more accurate results because this focus on wide range study of information hence we can say that zero base budgeting helps in knowing more accurate results.

2. It helps in bringing more efficiency because allocation of resources are more realistic under this type of budgeting.

3. It helps in reduction in redundant activities because non-productive activities are excluded from this type of budgeting.

4. This type of budgeting is very useful to non-profit or service organizations.

5. This type of budgeting helps in better planning.

6. It helps in removing problems of convetional type budgeting.

Following are the main disadvantages of zero base budgeting;

1. This type of budgeting requires high efforts so it is very costly type of budgeting.

2. For small level organization this type of budgeting is not goood because higher costs and higher number of employees are required for zeo base budgeting.

3. Personal bias is major problem for zero base budgeting.

4. More paper work is required for zero base budgeting hence it will lead to some type of inefficiency.

5. Management may be overburdened and as a result management may oppose new ideas and changes.

Zero base budgeting is very unique for health care industry because we have already seen that zero base budgeting is very helpful for service industry. This type of budgeting is very innovative type and it helps in managing every item of budegt from zero hence zero base budgeting will be very helpful for health care industry. At the end of a particular year all items becomes irrelevant and for next year every items start from fresh hence zero base budgeting will be very helpful for health care industry.