Page 60 - APM Integrated Workbook STUDENT S18-J19

Chapter 3

3.2 Incremental budgets, zero-based budgets (ZBB) and rolling budgets

Type of budget Suitability Advantages
Incremental – starts with the  Stable business.  Quick, low cost and easy.
previous period’s budget or  Good cost control.  Managers not
actual results and adjusts demotivated by targets
these by an incremental  Limited changing regularly.
amount to cover inflation or discretionary costs.
other expected changes.  Fine if historic figures
accurate.

ZBB – each element of the  Fast moving  Inefficient/obsolete
budget is justified as if the business. operations identified and
activity to which the budget  Historic figures removed.
relates is being undertaken inaccurate.  Better resource
for the first time. allocation.
 High discretionary
ZBB stages
costs.  Involvement of managers
1 Managers identify  Public sector improves knowledge and
activities that can be organisations. motivation.
individually evaluated.
 Responds to changes in
2 The costs and benefits of the business
each activity are included environment.
in a decision package.

3 The activities are ranked.
4 Resources allocated to
various packages.
Rolling – the budget is kept  Fast moving  Budgeting and control
continuously up to date by organisation. should be more accurate.
adding another accounting  New business.  Managers take budgeting
period (e.g. month/quarter) process more seriously.
when the earliest accounting  Any organisation
period has expired. that needs cost
control.

Illustrations and further practice

Now try TYU questions 4 and 5 from Chapter 3 of the Study Text.

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