Zero Base Budgeting Methodology

Topics: Cost-benefit analysis, Cost, Cost-utility analysis Pages: 2 (540 words) Published: May 9, 2013
Zero Base Budgeting methodology as well as the sequential stages in its introduction may be outlined as mentioned below:

a) Defining the decision units: A decision unit is a tangible activity or group of activities for which a single manager has the responsibility for its successful performance. The decision unit concept is akin to that of the responsibility center. A traditional cost center, a group of people or even a project may be a decision unit.

b) Defining the objectives of each decision unit in clear and specific terms and in conformity with the enterprise objectives and goals.

c) While identifying activities in the form of decision packages for any given activity there may be several alternative decision packages, each describing a different level of effort and cost benefit relationship. There are two types of decision packages – mutually exclusive packages and incremental packages.

d) Ranking of alternative decision packages: In order of decreasing the benefit to the organization, using cost benefit analysis technique. Large volume of decision packages is expected in zero base budgeting in the early years. This problem can be overcome with computer routines. Alternatively, this problem can be reduced by concentrating on marginal priority packages. This is because ultimately all the packages presented for funding generally would fall into three categories;

i) Those with high priority and high probability of funding; ii) Those with a marginal priority and which may be funded or not funded depending on the resources available; iii) Those with a low priority and low probability of funding

Those decision packages in category to warrant the greatest scrutiny over the others. The superior officers could profitably allocate their time for this

e) Forwarding the ranked decision packages to the next higher organizational units, for review, merger with other comparable decision packages and for reranking. As the decision packages are...
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