Zero based budgeting is a budget-planning procedure for the reevaluation of an organization's program and expenditures. It requires each manager to justify the entire budget request in detail and places the burden of proof on the manager to justify why authorization to spend any money at all should be granted.
The concept of zero based budgeting was introduced in 1960. The concept was initially used for some government and business organizations and more recently has increased attention.
Zero based budgeting is a budget-planning procedure for the reevaluation of an organization's program and expenditures. It requires each manager to justify the entire budget request in detail and places the burden of proof on the manager to justify why authorization to spend any money at all should be granted. It starts with the assumption that zero will be spent on each activity-thus the term "zero base". What a manager is already spending is not accepted as starting point. Managers are asked to prepare for each activity or operation under their control a "decision package" that includes an analysis of cost, purpose alternative course of action, measure of performance, sequences of not performing the activity, and benefits.
The zero based budgeting approach asserts that in building the budget from zero, two types of alternative should be considered by managers: (1) different ways of performing the same activity and (2) different levels of effort in performing the activity. Success in implementing zero based budgeting requires linkage of zero based budgeting to the long range planning process, sustained support and commitment from executive management, innovation among the managers who makeup the budget decision packages, sale of the procedure to people must perform the work necessary to keep the concept vigorous.
Sound budgeting procedure should always require a careful evaluation of all operating facts each time the budget is prepared. There fore the zero based budgeting procedure is new and unique mainly in approach rather than in basic planning and control philosophy.
Cost-Bnefit Analysis
Cost/benefit analysis means comparing the cost of a proposed investment and the benefit that will be achieved from investment. Normally financial costs and benefits are considered in cost/benefit analysis but in some sophisticated analysis models intangible benefits are also taken into account.Globalization and International Financial Reform
A remarkable globalization of the world economy has taken place. The increasing integration of national economies into global markets promises to continue to alter dramatically the volume and character of international resource flows.Financial System of More and Less Developed Countries
In more developed nations, monetary and financial policy plays a major direct and indirect role in governmental efforts designed to expand economic activity in times of unemployment and surplus capacity and to contract that activity in times of excess demand and inflation.