Page 100 - BA2 Integrated Workbook - Student 2017

Chapter 6

5.4 Zero-based budgeting

Zero-based budgeting (ZBB) was developed as an alternative to the incremental
approach.

The CIMA Terminology defines zero-based budgeting as a ‘method of
budgeting that requires all costs to be specifically justified by the benefits
expected.’

Zero-based budgeting is so called because it requires each budget to be prepared
and justified from zero, instead of simply using last year’s budget or actual results as
a base. Incremental levels of expenditure on each activity are evaluated according to
the resulting incremental benefits. Available resources are then allocated where they
can be used most effectively.

Advantages Disadvantages

 Avoids waste  Difficult to justify
each cost
 Managers
consider  Time
alternatives consuming

 Effective  Requires skills
resource
allocation

5.5 Participative budgeting

The CIMA Terminology defines participative budgeting as a ‘budgeting
process where all budget holders have the opportunity to participate in
setting their own budgets’.

This may also be referred to as ‘bottom-up budgeting’.

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