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Chapter 8

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

Type of budget Suitability Advantages

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

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

(3) The activities are
ranked

(4) Resources allocated
to various packages

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