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.