Question

Explain zero base budgeting.

Answer 1

The newest method of budgeting as a managerial tool is called zero-based budgeting (ZBB). Jimmy Carter, the former president of the United States, was the first to use this in 1962. To put it simply, zero-based budgeting (ZBB) is a method of defending budget demands from the bottom up by ranking programs and assessing alternative program bundles in order to choose the best option and allocate resources. Professor R.A. Musgrave characterizes it as a team and says that rather than focusing just on looking at little changes, the goal is to look at the budget as a whole.

“A planning and budgeting process that places the onus of proving why a manager should spend money at all on each manager, requiring them to defend their entire budget request from the ground up (thus zero-based).” According to the method, every activity must be examined in decision packages that are assessed by system analysis and prioritized.