Types of budgets - Zero based 2.2.4
Zero based budgeting - means no budget is set and no money is allocated to cover costs. Managers must be prepared to bid for and justify spending on their departments. This forces them to examine all their costs. Advantages of Zero based budgets Disadvantages of Zero based budgeting Resources should be allocated more efficiently Can be more expensive Easier to adapt as circumstances change Can be more time consuming Gives more flexibility in response to changes in the market or economy Forceful managers may be more successful in attracting funds than others who may have more worthwhile projects Forces managers to think and plan more carefully Because of the expense, some businesses use zero-based budgeting every few years, or use a mixture of zero and historical e.g. departments receive a base budget and have to negotiate the rest.