What is meant by zero based budgeting How is it different from traditional budgeting?

Traditional budgeting is based on historical information, which revolves around accounting. Zero-based budgeting is based on estimated data, and that’s why it revolves around decision-making. Traditional budgeting encourages similar costing to the previous year. Zero-based budgeting supports cost-effectiveness.

What is meant by zero-based budgeting?

Zero-based budgeting (ZBB) is a budgeting process that allocates funding based on program efficiency and necessity rather than budget history. 1. As opposed to traditional budgeting, no item is automatically included in the next budget.

What is meant by zero base budgeting What are the different steps involved in it also state how it is useful to the business?

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting starts from a “zero base,” and every function within an organization is analyzed for its needs and costs.

What is traditional budgeting?

Traditional budgeting is the process of projecting your business’s revenue and expenses for the upcoming year based on your previous budget. A budget is an accounting tool that helps you predict and analyze your business’s earnings and expenses.

What are the advantages of zero-based budgeting over traditional budgeting?

Zero-based budgeting differs from traditional budgeting in that the companies that use it create a budget for each new period. The benefits of this method include that it can lower costs by keeping old and new expenses in check.

What is meant by zero based?

Definition of zero-based



: having each item justified on the basis of cost or need zero-based budgeting.

What are the different types of budgeting?

Different types of budgets

  • Master budget. A master budget is an aggregation of lower-level budgets created by the different functional areas in an organization. …
  • Operating budget. …
  • Cash budget. …
  • Financial budget. …
  • Labor budget. …
  • Static budget.


Which is better traditional budgeting and zero-based budgeting?

Zero-based budgeting is better than traditional budgeting when it comes to clarity and responsiveness.

What are the 3 types of budgets?

The three types of annual Government budgets based on estimates are Surplus Budget, Balanced Budget, and Deficit Budget.

What is wrong traditional budgeting?

Traditional budgeting produces inaccurate and unreliable results. This mainly resulted from spreadsheets being not flexible enough to provide a more dynamic assessment; this means that traditional budgeting tools are not only imprecise but also not able to provide a complete picture of the business needs.

How is zero-based budgeting used?

Zero-based budgeting is when your income minus your expenses equals zero. Perfect name, right? So, if you make $3,000 a month, everything you give, save or spend should add up to $3,000. Every dollar that comes in has a purpose, a job, a goal.

What are the features of zero-based budgeting?

Features of zero-based budgeting

  • Zerobase. ZBB works on the principle that every year, the projected expenditure for each project/programme must be start from zero. …
  • Focus is on activities/programmes. …
  • Best suited to discretionary costs. …
  • Decision packages. …
  • Cost-effective. …
  • Bottom-up approach. …
  • Accountability.


Who introduced zero-based budgeting?

Peter A. Pyhrr

Peter A. Pyhrr developed what he then termed zero-base budgeting (now more commonly known as zero-based budgeting) in the 1960s, and implemented it at Texas Instruments. In 1970, he wrote a Harvard Business Review article about it, and it quickly gained a following.

What are the features of zero-based budgeting?

Features of zero-based budgeting

  • Zerobase. ZBB works on the principle that every year, the projected expenditure for each project/programme must be start from zero. …
  • Focus is on activities/programmes. …
  • Best suited to discretionary costs. …
  • Decision packages. …
  • Cost-effective. …
  • Bottom-up approach. …
  • Accountability.


What are the 3 types of budgets?

The three types of annual Government budgets based on estimates are Surplus Budget, Balanced Budget, and Deficit Budget.

What is zero-based budgeting PPT?

 Zero Base Budgeting is a method of budgeting in which all expenses must be justified for each new period. Zero base budgeting starts from a ‘Zero-base’ and every function within an organization is analysed for its needs and costs.

Who is the father of zero-based budget?

Peter Pyhrr

Peter Pyhrr was a manager at Texas Instruments in Dallas, Texas, who developed the idea of zero-based budgeting (ZBB).