ML pic was formed three years ago to develop e-commerce systems and design web sites for clients.

The company has expanded rapidly since then and now has a multi-site operation with bases in the UK and overseas.

ML pic has recognized the need to formalise its planning and budgeting procedures and one ofits divisional managers has been assigned to co-ordinate the budgets for the year to 31 March 2003. He recently attended a course on Financial Planning and Budgeting and has been puzzled by some of the concepts. In particular, he would like you to explain the following;

The differences and similarities between zero-based budgeting and activity-based budgeting;

The reasons why budget holders should prepare their own budgets;

The reasons why incremental budgeting may not be appropriate as a basis of budgeting if budget bias is to be minimised.

Required:

(a) Prepare a report, addressed to the divisional manager, that explains the issues he has identified above.
Techniques that are used in order to improve an organisation's performance include:
cost reduction; and value analysis.
Required:

(b) Explain these techniques and how they may be used by ML pic as part of its planning activities.