Question

Give characteristics and mechanisms of zero base budgeting.

Answer 1

The following are the main characteristics of the Zero-Base Budgeting:

1. Identification of decision unit: A decision unit may be a program or a project within the organization. This unit is responsible for implementing a specific allocation of resources.
2. Decision package: Each decision unit’s budget request is developed as a decision package, which is a detailed document describing the objectives, current operations, alternatives, and possible funding levels. Decision packages allow management to evaluate and rank the units.
3. Review and Rank: Each decision package is reviewed and ranked in order of priority by the manager responsible for it. The ranking considers the objectives, the amount of resources necessary, and the major goals to be achieved.
4. Re-examination of programmes: ZBB requires a thorough examination of all programs in terms of structure, function, and activities. Importantly, it does not simply increase or decrease budgets based on past years but builds the budget from zero, justifying every expense from scratch.