Question

In the required reading article for this module, Zero-Based Budgeting, the author, J. Stephen McNally, renders both positive and negative support for why a company might want to implement the concept over a traditional budgeting process. It can be a radical change for a company used to doing things "same as last year." If you were in charge of the budgeting process for a company, would you implement zero-based budgeting for a year to try out the concept? What things about the corporate environment did you take into consideration when making that decision?

Answer 1

For better understanding, first of all let’s know something about zero based budgeting;

Zero-based budgeting is a modern approach in budgeting sytem. Under zero-based budgeting a budget manager has to make fresh estimations about revenues & expenditures for a new year. In other words we can say in this type of budgeting budgeting manger does not reply on the previous year data hence zero-based budget for the year always start with zero.

Now come to main question. If I were in charge of the budgeting process then definitely I will implement zero-based budgeting because of the following reasons;

1. Zero-based budgeting will help in improving efficiency for our company because after adopting new types of budgeting company will enjoy benefits of modern techniques.

2. Zero-based budgeting helps in reducing redundancy in the process.

3. This type of budgeting mostly focuss on the mission of the company because this type of budgeting helps in focusing on only core issues.

4. It provides more accurate & relevant estimations for a particular years.

5. It helps in saving costs of the budgeting process.

6. It helps in better utilization of available resouces.

7. This type of budgeting helps in overcome weakness of traditional budgeting system etc.

Following things about the corporate environment need to be considered;

1. First of all we need to consider all available separate activities of the company so that proper zero-based budegting can be made.

2. We need to consider core mission & visions of the company so that in zero-based budgetting we can match company’s mission & visions.

3. We need to consider budgeting pattern of the competitors so that our budgeting process can beat strategy of the competitors.

4. We should try to collect information about the available positive strengths for our company so that we can utilise those for the benefits of our company.

5. We need to identify weaknesses also so that we can prepare ourself for facing those weaknesses etc.