Adopting Zero-Based Budgeting (ZBB) for Effective Strategy

This assignment details the need for Unidate company to adopt effective strategies, specifically focusing on implementing Zero-Based Budgeting (ZBB). It elaborates on alternative budgeting systems and selects ZBB for sustainable business development. The report references various scholarly works, such as those by Rabovsky, Bieling, Ekanem, McLendon & Hearn, Sharifi et al., Pietrzak, Schulze et al., and Miller & Hokenstad, along with textbooks like 'Accounting Finance' by McLaney Atrill and 'Management Cost Accounting' by Drury.

BUSINESS FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1. How firm can benefits from having budget and its process support developing the business:
.....................................................................................................................................................1
2.Implementation of traditional budgeting approaches:..............................................................2
3. Whether traditional budgetary system is adequate to the business in its planned future form:
.....................................................................................................................................................3
PART 2............................................................................................................................................4
4. Alternative budgetary systems and benefits offers to the Unidate:.........................................4
5. Potential application of these methods to the Unidate:...........................................................6
6. Analysing the method that implement to the Unidate:............................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
In any business, company need to make certain budgetary tools that can be used by the
firm in order to provide effectiveness in the firm. Earlier, each firm was trying to provide
traditional budgetary system that assist the firm to gain the sustainable development. However,
there are certain new and advanced budgetary tools that can be used by the firm which could
help the firm to gain the sustainable development (Rabovsky, 2012). In this report, Unidate
company is having many issues that occurs due to the Brexit. Which are going to eliminate
effectively.
PART 1
1. How firm can benefits from having budget and its process support developing the business:
Budget is the tool which covers the future estimating of financial earnings and outflows
for a particular period of time. The budget is the most effective tool that can be used by the firm
for smooth running of the firm's operations. With the help of budgetary tools, firm can analyse
performance and compare actual outcome with the budgeted outcome so that the firm can attain
sustainable development (Bieling, 2012). The Unidate company is using the traditional
budgeting system which is outdated technique and hence there is a strong need to adopt certain
changes as per the company's requirement so that the company could gain the sustainable
development. Budget is an essential thing which uncover the financial implications of plans, to
elaborate the resources needed to attain these plans and also to render a means of measuring,
seeing and controlling the achieved outcomes as compare to plans. Many managers who are
familiar with the accounting with accounting, criticize budgets demonstrating that this applies
extra consumption of efforts and waste of time, claiming that there are so many forecasting in the
budget and those forecasting are unreliable and not in practice (Ekanem, 2014). This is the
reason, most of the big companies form budgets because, this emphasis the manager to foresee,
to study trends and emerge essential strategies. In addition to this, budgets can stop imminent
issues (Accounting Finance).
There are other benefits and consequences which go beyond the financial dimension and also
have more to do with firm management in general. There are so many benefits which are covered
in the budgeting process. Some of them are as follows:
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 Budget forces managers to forecast effectively: Mangers of the firm needs to regularly
scanning business environment to instant changes which would affect the firm. Vague
generalization about what the feature might hold for the firm are not great for
incorporating budget (What is Budgeting?, 2017). Managers is required to give their
predictions into the certain specific forecasting manner.
 Budgeting urges managers and employees by rendering effective yardsticks for
assessing the performance: The budgeting process can renders on Unidate' sound
motivational impact by covering managers in the budgeting process and also by rendering
incentives to managers to makes efforts for grabbing the firm's pre-set goals and
objectives. This renders an effective information for the top level authority to assess the
performance of the managers and could be implemented to reward effective positive
outcomes.
 Budgeting could support in the communication between diverse levels of
management:
 Budgeting is an important tool for writing the business plan: A new business
operations are required to demonstrates a credible business plan at the time of raising
funding. An effective or practicable budget estimation is a most important of a firm plan.
Hence, this can be observed that by implementing budget process, the Unidate can benefits its
pre-set objectives and targets (Management Cost Accounting).
2.Implementation of traditional budgeting approaches:
Purpose of traditional budgeting: This is the tool of making the budget under which
previous year's budget is taken as the base. Current year budget is made by doing changes to the
last year budget by adjusting the expenses which are based on the inflation rate, consumer
demand, market situation and so on. Under the traditional budgets, there is a requirement to be
justified that are over and above the previous year's budget. Under the traditional budgeting
system, incremental budgeting is the perfect tool in the business.
Advantages of traditional budgeting:
 Implementation: This is an easy to implement. In addition to this, this can be framed
faster because not diverse changes are needs in the last years budget. This eliminate the
wastage time.
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 Stability: This is the traditional budgeting method and most of the firms are implemented
to it. Such introduces consistency in the functioning of a firm, as the financial activities
are implemented with coordination and everyone knows what are the requirement that are
need to done.
 Decentralisation: This assist in promoting decentralisation in the firm. Any
organisation's branch situated away from its headquarters could make a budget on its own
and frame changes within the permitted limits.
 Consolidation: This method renders the opportunities to merge diverse projects together
in a single one. This assist in enhancing the performance of those projects that were
underperforming before they were merged with a sound performing working project.
Disadvantages of traditional budgeting method:
There are some of the disadvantages as well which are discussed as under:
 Fixed and rigid: Traditional budgets are not dynamic in nature as these are fixed. This
means once these are made, can not be changed. So many factors such as new
competitors in the market, alteration in the policy, modifications in the policies, changes
in the market conditions etc might take place, yet the budget which remains same
(Pietrzak, 2013).
 Lesser motivation: These kinds of budgets are made by the top level authorities by
incorporating few changes in the last year's budget. Henceforth, this encourage
bureaucracy. That is why other people in the firm feel isolated. This kind of activities
against the motivation of employees of the firm.
 Deliberate inflation: Managers might intentionally enhance their budgeted costs and
asking the higher authority of Unidate company to allot them the enhanced costs without
giving justification on these expenses.
3. Whether traditional budgetary system is adequate to the business in its planned future form:
Traditional budgetary system is the method which is used in the earlier time. Now, the
advance budgeting approaches, such as zero base budgeting and so on, are emerged in order to
predict future circumstances in an effective manner. However, by using traditional budgeting
approaches in the firm can not renders an anticipated outcomes for the firm. Because, this
becomes the obsolete. In the given case, the Unidate wants to expand their business and it is
looking to expend its business operation in the Gulf countries, north America and also in the far
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east nations. For this, there is a need to employ new and advanced budgetary plans so that the
business can run in an effective manner. That is the reason the Unidate current budgetary plans
are not perfect and there is a need to change the budgetary system so that the business can run
effectively (Management Accounting). If the firm is genuinely serious about their expansion,
then it needs to have changes as per the effective strategies. Because, there is a need to provides
effective strategies in the by the top level management more particularly Mr. Alasdair, who is the
managing director, for implementing changes in relation to the budget. Because, the traditional
budgetary system is rigid and once made it can not change. Therefore, there is a need to
provides effective strategies for implementing strategies so that the company needs to provides
so that the effective strategies are made (Sharifi and et. al., 2012).
PART 2
4. Alternative budgetary systems and benefits offers to the Unidate:
There are so many budgetary system that are going to adopt by the Unidate so that its
pre-set targets and goals can be achieved effectively. The alternative budgetary systems are
going to implemnet into their financial planning and controlling process. This would explore
“Zero based budgeting”, “Activity based budgeting” and rolling budgeting.
Zero based budgeting is one of the management tool which includes forming the budget
from the scratch with the zero base. This covers re-assessing each line item of cash flow
statement and justifiability entire expenditure which are going to have by the divisions.
Henceforth, Zero based budgeting is the method of budgeting under which all the expenditures
for the new period which are calculated by taking help of the actual expenses. By applying this
method, each activity is required to be justified, elaborating the revenue that each cost would
emerge for the firm.
By applying this budgetary tool, sales and expenditures are taken from the zero and no such
figures are to be taken from the past data. The zero based budgeting lays emphasis on
determining task and thereafter funding these expenditure instead of current expenditure
structure.
Zero Based Budgeting are elaborated in the following steps.
 Determination of a task: Under this, task is to be determined in an effective manner.
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 Finding ways and means of completing the task: Under this step, Unidate company
finds various ways in order to effectively incorporate Zero based budgeting.
 Assessing these solutions and also assess alternatives of sources of funds.
 Setting the budgeted numbers and priorities.
By applying Zero based budgeting, Unidate can have the accuracy in order to make
certain tools so that the business can get the sustainable development. This is the budgeting
which makes each department in order to recheck each item of the cash flow and calculate their
operational costs. This budgeting assist in cost reduction because this renders a reflection of
costs against the anticipated performance. This budgeting method also helps the firm to allocate
the resources in an effective manner. ZBB also does not apply at the actual numbers. ZBB also
enhance the co-ordination and communication under the department and urge employees by
covering them in the decision making.
By implementing ZBB, certain following mentioned benefits can offer to the Unidate:
 ZBB does not consider the previous year figures.
 Budgeting are the engaged with certain tasks and level of business services.
 The whole funding system is concentrated more on activities and level of activities which
link with the business strategies.
 This catalyses greater perspective with the divisions throughout the world.
 Resulting budget is well organised and justified and linked to the strategy.
 ZBB enhances operational effectiveness by stringent challenging of assumptions.
 The entire concept is supporting cost reduction by eliminating automatic budget
enhancement in an outcome of savings.
Activity Based costing: This is the process that is relied on the framework of the firm activities
the whole budget is segregated with the kind of activities in the firm (Schulze, Seuring and
Ewering, 2012). Once the entire cost of activity is calculated the information about is worked in
the firm environment. The concept of ABB could be segregated into three steps:
 Activity determination and application of cost drivers into the business procedure.
 Predict the number of cost driver for the activity level requirements.
 Predict diverse rates of the cost drivers.
 ABB draws focus to related activities of overhead and their connected costs. The more
concentrates are provided towards the control of such tasks and striving hard manage
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activity volume. On the other hand, traditional budgeting approach emphasis on the input
costs, ABB controls to focus more only input costs. ABB controls to concentrates more
on outputs-based approach and know the related driver costs of tasks of activities.
Rolling budget is the process which is mostly implemented in the dynamic nature of
business. This estimates the primary business drivers that are evaluated on a regular basis. This
leading planning tool would assist the firm to find opportunities during the persistent volatility
and intense competition. The essential objectives of such kind of budgetary framework is to
forecast the relevant risks and opportunities by the changing business environment (Miller and
Hokenstad, 2014).
5. Potential application of these methods to the Unidate:
Though the different budgeting systems provide much assistance to the refereed
organisation there are some disadvantages also which are associated with their implementation in
business. Management of McLaney needs to take a number of steps in order to implement the
same. Different variety of budgeting system has their own problems which are highlighted in the
below text:
Zero based budgeting – Under this system the major drawback is of having no relation
with previous accounting year spending which results into lack of quality information. Since
spreading of cost is not done on equal basis while constructing the budget it limits the capacity of
refereed organisation to expand or decrease the overall expenditure (Ekanem, 2014). Apart from
this it is also engaged with only few specific activities which shows that the scope of zero based
budgeting is comparatively low. Focus is given to only those tasks which are in order with the
organisation strategies due to which non align activities remain unrevealed effect of which is also
vital in business.
Activity based budgeting – It is a time consuming process along and along with that it
also add implementation cost to the organisation as software has to be purchased for different
specific activities. These applications are of high value which may disturb the present financial
planning of McLaney. Apart from this much efforts needs to be taken to acquire licence for
using different software that also add work pressure on the IT department. Before starting with
ABB management needs to communicate whole employees regarding system developed against
an activity which is a complex process and take time to be practically implemented at work place
(McLendon and Hearn, 2013). As in the given organisation employees are in charge of various
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projects to perform it becomes difficult to give such big responsibility in their hands to carry out
work with entirely new system.
Rolling budgeting – Same as activity based budgeting system it also consumes so much
of time to produce a fresh forecasts to business. As this limit is set for a short time duration
spending of this much duration on one activity is not favourable specially in case when the
environment is dynamic and less time is available for making the modifications.
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6. Analysing the method that implement to the Unidate:
There are three alternative methods of budgeting which are going to implement in an
effective manner. However, this can be said that the company needs to adopt zero base budgeting
approach. Because, this is the most effective strategy that are going to make certain tools that can
be used by the firm. In this situation, the cited company needs to adopt zero base budgeting for
having the accuracy in the future estimation. However, this can be said that the company adopts
various tools to adhere this strategy in an effective manner. Earlier, the Unidate opted traditional
budgeting methods that were used by the firm that was totally based on the past year data. Once
traditional costing was made, can't be changed and this will not also render the accuracy of the
figure. Now, cited company wants to adopt zero base budgeting system which starts from the
beginning of the sales and expenditure figures. This does not consider the previous years data.
There is a strong need to adopt ZBB framework in order to renders effective strategy.
CONCLUSION
From the above mentioned report, this is observed that the company needs to adopt
effective strategies so that the Unidate company can overcome the mentioned strategies in an
effective manner. In this report, alternative budgeting system are elaborated, and ZBB is
selected by the firm so that the business can gain the sustainable development.
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REFERENCES
Books and Journals:
Rabovsky, T.M., 2012. Accountability in higher education: Exploring impacts on state budgets
and institutional spending patterns. Journal of Public Administration Research and
Theory, 22(4). pp.675-700.
Bieling, H.J., 2012. EU facing the crisis: social and employment policies in times of tight
budgets. Transfer: European Review of Labour and Research, 18(3). pp.255-271.
Ekanem, E.E., 2014. Zero-based budgeting as a management tool for effective university budget
implementation in University of Calabar, Nigeria. European Journal of Business and
Social Sciences, 2(11). pp.11-19.
McLendon, M.K. and Hearn, J.C., 2013. The resurgent interest in performance-based funding for
higher education. Academe, 99(6). p.25.
Sharifi, A. and et. al., 2012, September. PEPON: performance-aware hierarchical power
budgeting for NoC based multicores. In Proceedings of the 21st international conference
on Parallel architectures and compilation techniques (pp. 65-74). ACM.
Pietrzak, Ż., 2013. Traditional versus activity-based budgeting in non-manufacturing companies.
Social Sciences, 82(4). pp.26-37.
Schulze, M., Seuring, S. and Ewering, C., 2012. Applying activity-based costing in a supply
chain environment. International Journal of Production Economics, 135(2). pp.716-725.
Miller, D.B. and Hokenstad, T., 2014. Rolling downhill: Effects of austerity on local government
social services in the United States. J. Soc. & Soc. Welfare. 41. p.93.
Accounting Finance, An Introduction, McLaney Atrill, 7th Ed, Chapter 15
Management Cost Accounting, Drury, 9th Ed, Chapter 15
Management Accounting, Weetman, 2nd Ed, Chapters 13 14
Online
What is Budgeting? What is a Budget? 2017. [Online] Available
through<https://www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting>.
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