Shareholders of publicly held firms are demanding increasing transparency in every aspect of the operations of the firm, including budgeting. To prove that they are maximizing shareholder wealth, firms have to show shareholders that they are controlling costs and managing their financial resources well. Traditional budgeting, which is usually done incrementally, does not adequately accomplish the goal of maximizing shareholder wealth.
Zero-based budgeting (ZBB) is a more sophisticated budgetary technique than traditional line-item, incremental budgeting. ZBB does not rely on historical data or inflation estimates to build a budget. Instead, managers who use ZBB start with a budget of zero for every line item and build the budget from there. They research every line item of the budget as if the firm were in year one of its operations and allocate funding in the budget for the same.
Zero-based budgeting is usually started on a trial basis within a firm. A department or division is chosen for a test run and zero-based budgeting is implemented for that area.
Using this test run, the financial manager can see if budgetary slack and the year-after-year effects of inflation have been removed and made the budget more realistic.Using zero-based budgeting can be very helpful in getting a firm’s financial planning under control. This course will look at:
The advantages and disadvantages of zero-based budgeting.
The costs and benefits of zero-based budgeting to the shareholders and the firm.
How divisions or departments are selected for a trial run of zero-based budgeting.
Is your firm dissatisfied with its current form of budgeting? Would your firm like to get budgeting under control? Then zero-based budgeting might be the answer. The Accenture Academy course Introduction to Zero-Based Budgeting (ZBB) will get you started on the right path to improved budgetary control and planning.
Accenture Academy offers proven, cost-effective learning solutions for a more versatile workforce and a more agile organization. We provide a flexible learning approach that helps your people be more versatile and your entire organization be more agile in the marketplace. Curriculum includes Supply Chain Management, Finance, Procurement, Analytics, Leadership & Management and Specialty Skills.