Module 05 Discussion 2 - Zero-based Budgeting

What is zero-based budgeting? How can this type of budgeting assist in the planning process? What are some disadvantages of zero-based budgeting?

Please make your initial post by midweek, and respond to at least one other student's post by the end of the week.

Student's post:

Hello,

Zero-based budgeting is a method of budgeting that requires each cost to be justified for each new period. Each period, the cost begins at zero and the company or organization must analyze its needs and costs.

The drawbacks to zero-based budgeting include; requires prep time (which is an added expense), justifying each expense may not be practical or feasible, often requires additional training for staff, requires employee commitment.

There are benefits as well though. These benefits include; fund allocation is accurately distributed based on needs (avoids/reduces unnecessary spending), reduces stale, under-performing or inadequate and ineffective/counter productive activities, and this type of budgeting can be made cost effective.

When in the planning process of a project, this method is useful to allocate funds only where necessary and can require re-evaluations of processes to ensure they are adequately saving money and utilizing the funds efficiently. This type of budgeting will help to eliminate waste and frivolous spending.