Disadvantages of Zero Based Budgets

Disadvantages of Zero Based Budgets

1.    Time Consuming

First disadvantage of zero based is that, it require a detail research by the relevant manager, therefore it require a lot of time of manager to prepare the budget.

2.    Too much Technical

Second advantages of zero based budgets are its data collection and analyses requirement. Data may noe be readily available to the manager, moreover, data analyses and drawing conclusion is very technical job.

3.    Pressure for accuracy

Third disadvantage of zero based budget is its un due pressure on manager for accuracy. Budget put extra pressure on manager for accuracy of estimates and then achievement of target set by themselves.

4.    Attempt of actual figures

Fourth disadvantage of zero based budgets is more focused on accuracy. Budget tries to prepare the budget with accuracy. The basic definition that budget is an estimate is ignored.

5.    Re inventing Wheel

Some people consider it to re invent the wheel every time. In many business the basic structure of the organization does not change for years, therefore zero based budgeting is not effective is such organization.

Zero Based Budget Characteristics

Zero Based Budget Characteristics

1.    Start from Scratch

Zero based budget start from the scratch. It means old information and justification for allocation of resources is no more relevant under zero based budget technique.

2.    Re-Justification for Allocation of Funds

Zero based budget technique requires justification for allocation of fund each time (each year). Incremental approach, where resources are allocated on the bases of old justification is no more relevant under zero budget technique.

3.    Re-Define Priorities

Zero budget technique requires re-defining of priorities for every year. Zero budget technique recognizes that priorities changes over the period of time and therefore every year before allocation of funds, those priorities need to be re-examined.

4.    Depth Analyses

Zero budgeting technique required in depth analyses of the activities and therefore more update and accurate than incremental budget.

Advantages of Zero Based Budgets

Advantages of Zero Based Budgets

Advantages of Zero based budgets include realistic estimate, accurate allocation of resources, and effective utilization of resources, improved communication between approving and preparation authorities, and improved understanding of budget.

1.    Realistic Estimates

First advantage of zero based budgets is realistic estimate for its peroration. It is based on realistic and updated information or estimates.

2.    Accurate Allocation of Resources

Second advantage of zero based budgets is accurate allocation of resources. Zero based budgets are based on more depth analyses of activities and therefore resources are accurately allocated to different activities.

3.    Effective Utilization of Resources

Third advantage of zero based budgets is effective utilization of resources. In zero based budgets resources are allocated accurately and this accurate allocation ensures effective utilization of resources.

4.    Improved Communication

Fourth advantage of zero based budgets is improved communication between planner and implementer of budgets. Zero based budgets requires a lot of discussion and communication for allocation of resources, therefore it eliminates the communication gap between budget approving and budget implementation authorities.

5.    Improve understanding

Zero based budget require detail justification for allocation of resource, therefore it require a details work and deep analyses. The details working improve the understanding of the managers responsible for budget preparation & implementation.