Page 115 - BA2 Integrated Workbook STUDENT 2018

Budgeting

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 consuming
alternatives
 Requires skills
 Effective
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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