Zero-based Budgeting: Process, Benefits, and Implementation

This document discusses the process of Zero-based Budgeting, including its benefits and practical implementation. It explains how Zero-based Budgeting requires justification for every expense and helps improve efficiency. The document also includes a case study of St Brides Group's cash budget.

St Brides Group

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Cash Budget:................................................................................................................................3
TASK 2............................................................................................................................................7
Define and evaluate process of Zero-base Budgeting:................................................................7
Assessing advantages ZBB has over Traditional based:.............................................................8
How enterprise may introduce ZBB in practical terms:..............................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Budgeting is foundation of every business's success. It enables to plan and manage the
key finances of the enterprise. when there is none control over spending/expenses, scheduling is
pointless, and there is no effective planning, no particular goals to be accomplish (Dokulil,
2016). The study is classified in two separate tasks, wherein task one is piratical task of
preparation of monthly cash budget based case study of St Brides Group. The group has Spa
Reports and engaged in managing five resorts in Pembrokeshire, West-Wales. While another
task is covers comprehensive discussion about Zero-based Budgeting including its process,
benefits in comparison to traditional-based budgeting and manner by which enterprise can
introduce it in practical terms.
TASK 1
Cash Budget:
Cash budget described as forecast of how a company can raise and expense cash in the
upcoming years. Making cash budget is crucial since it helps corporation to know
about their goals/targets and prepare for the prospects. It's also crucial to obey cash budget
except if unexpected situations arise, because sticking to specific plan can control
expenses/costs. The task of making cash budget is quite significant in itself since it
allows organisation to answer critical concerns which can direct entity as it plan future business
operations. When organisation plan their cash budget, management has to decide how much that
will cost company to run their business overtime covered, how much business expect business to
take-in, as well as how business can compensate for any deficit (Sova, 2019). Developing and
finding solutions to these problems will help business remain a step forward of potential
challenges. Here in this regard following is monthly Cash Budget of St Brides Group, prepared
on the basis of information and details provided as follows:
Cash Budget
Jan Feb Mar Apr May Jun Jul
Au
g Sep Oct
No
v Dec
Cash Inflows
Room Sales

- Cash
117
360
1189
30.8
114
603
122
380
.8
128169.
6
123
270
121
522
.8
288
450
895
93.
2
120
480
105
048
103
113
.6
- Business Credit (W.N.-
1) 0
4043
0.52
769
62.
06
759
52.
85
77305.1
1
816
84.5
4
817
71.
86
796
67.
40
136
638
.02
157
903
.93
103
324
.67
731
36.
24
Total Cash Inflow
117
360
1593
61.3
2
191
565
.06
06
198
333
.64
55
205474.
7056
204
954.
539
2
Cash Outflows
General maintenance
expenses 380 380 380 380 380 380 380 380 380 380 380 380
Furniture and Fixture
(Ground Floor)
200
00
200
00
200
00
200
00
Building Costs
175
00
175
00
175
00
175
00
175
00
175
00
Petrol and Diesel
Expenses 250 250 250 250 250 250 250 250 250 250 250 250
Purchase of Furniture for
Reception
500
0 5000
500
0
Corporation Tax
223
000
Complimentary
Toiletries
1166
.67
116
6.6
7
116
6.6
7 1166.67
116
6.67
116
6.6
7
116
6.6
7
116
6.6
7
116
6.6
7
116
6.6
7
116
6.6
7
In Room Beverages
100
0 1000
100
0
100
0 1000
100
0
100
0
100
0
200
0
100
0
100
0
100
0

Marketing costs
375
0.0
0
375
0.00
375
0.0
0
375
0.0
0
Lighting and heating
Expenses
300
0.0
0
300
0.00
300
0.0
0
300
0.0
0
Salaries Expenses
150
00.0
0
1500
0.00
150
00.
00
150
00.
00
15000.0
0
150
00.0
0
150
00.
00
150
00.
00
150
00.
00
150
00.
00
150
00.
00
150
00.
00
Wages Expenses
125
00.0
0
1250
0.00
125
00.
00
125
00.
00
12500.0
0
125
00.0
0
125
00.
00
125
00.
00
125
00.
00
125
00.
00
125
00.
00
125
00.
00
Zero-hour Contract Staff
600
0
Purchase of Hot-tubs
375
0
212
50
Purchase of Bedding
Bundles
414
0
Purchase of New Kettle
Tray Sets
165
6
Deep Clean Services
600
0
Printing and stationery
costs
180
0 1500
150
0
150
0 1800
150
0
150
0
180
0
150
0
150
0
180
0
150
0
Laundry Services
Expenses
450
0
450
0
450
0
450
0
Purchase of Van 22000
Total Cash Outflows 309 3179 270 367 59096.6 517 692 100 777 709 593 567

30
6.66
6666
6667
186
.66
666
666
7
96.
666
666
666
7
666666
667
96.6
666
666
667
96.
666
666
666
7
596
.66
666
666
7
96.
666
666
666
7
52.
666
666
666
7
46.
666
666
666
7
96.
666
666
666
7
Opening Cash Balance
120
00
9843
0
225
994
.65
333
333
3
147
373
.04
726
666
7
308910.
0261
455
288.
065
033
334
608
445
.93
756
666
7
539
149
.27
09
438
552
.60
423
333
4
360
755
.93
756
666
7
289
803
.27
09
230
456
.60
423
333
4
Net Cash Out Flow
864
30
1275
64.6
5333
3333
-
786
21.
606
066
666
6
161
536
.97
883
333
3
146378.
038933
333
153
157.
872
533
333
-
692
96.
666
666
666
7
-
100
596
.66
666
666
7
-
777
96.
666
666
666
7
-
709
52.
666
666
666
7
-
593
46.
666
666
666
7
-
567
96.
666
666
666
7
Closing Cash Balance
984
30
2259
94.6
5333
3333
147
373
.04
726
666
7
308
910
.02
61
455288.
065033
334
608
445.
937
566
667
539
149
.27
09
438
552
.60
423
333
4
360
755
.93
756
666
7
289
803
.27
09
230
456
.60
423
333
4
173
659
.93
756
666
7
Working Note – 1:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Credit
Room
Sales 78240
7928
7.2
7640
2
8158
7.2
8544
6.4
8218
0
8101
5.2
1923
00
1343
89.8
8032
0
7003
2
6874
2.4
Cash
Collection
of credit
sales
53% of
Credit
Sales
4146
7.2
4202
2.216
4049
3.06
4324
1.216
4528
6.592
4355
5.4
4293
8.056
1019
19
7122
6.594
4256
9.6
3711
6.96
Discount
@2.5%
1036.
68
1050.
5554
1012.
3265
1081.
0304
1132.
1648
1088.
885
1073.
4514
2547.
975
1780.
6648
5
1064.
24
927.9
24
Net
Amount
After
Discount
4043
0.52
4097
1.660
6
3948
0.733
5
4216
0.185
6
4415
4.427
2
4246
6.515
4186
4.604
6
9937
1.025
6944
5.929
15
4150
5.36
3618
9.036
46% of
Credit
Sales
3599
0.4
3647
2.112
3514
4.92
3753
0.112
3930
5.344
3780
2.8
3726
6.992
8845
8
6181
9.308
3694
7.2
Total
Cash
Collection
form
Business
Account
Sales 0
4043
0.52
7696
2.060
6
7595
2.845
5
7730
5.105
6
8168
4.539
2
8177
1.859
7966
7.404
6
1366
38.01
7
1579
03.92
915
1033
24.66
8
7313
6.236
Bad Debts 782.4
792.8
72
764.0
2
815.8
72
854.4
64 821.8
810.1
52 1923
1343.
898 803.2
700.3
2
687.4
24

TASK 2
Define and evaluate process of Zero-base Budgeting:
Zero-based budgeting relates to systematic budgeting process wherein all expenditures
for every new time-cycle/period must be justified. Within organisational context zero-based
budgeting process usually begins from "zero base," as well as every task within an business
enterprise is evaluated according to its requirements and expenses. Budgets are therefore
designed through what 's required for the next year, irrespective as to whether every budget is
greater or smaller than the last. ZBB enables the incorporation of higher-level strategic priorities
within the budgeting phase by connecting them to different operational parts of the business
entity, where expenditures should be first classified and then assessed against past performance
and standards. due to its systematise and comprehensive design, zero-based budgeting can be a
rotating procedure over a period of multiple years, with certain operational areas being evaluated
at a point by management personnel or leaders (Ibrahim, 2019). Zero-based budgeting
process also reduce costs through preventing a general rise or a reduction in the budgets for the
previous year. Traditional budgetary approaches allows for incremental changes in prior budgets,
for instance a 2% spike in expenditure, as contrasted to a rationale for both older and fresh
expenses, as advocated for by the zero-based budgeting. Traditional budgets evaluates only fresh
expenditure, whereas ZBB begins from nil/zero and asks for the rationale of current, recurrent
spendings/expenses along with fresh expenses/costs. A Zero-based budgeting seeks to place the
burden on management to justify spending, and seeks to improve the efficiency of the entity by
minimizing expenses and not revenues only. Here are several key steps related to Zero-based
budgeting process:
 First step under this budgeting process is to recognise all the decision segments/units
which require an effective justification towards each single line-item expenses/costs in
organisation's proposed budget.
 Framing decision packages i.e. self-contained module/proposals require funds. Here
every decision-package encompasses proper explanation about activities, actual
amount/sum involved, requisite of item, key benefits occur by implementing proposal as
well as anticipated losses which may occur in case this is not accepted. Each package is

individual recognisable task. Such packages are primarily associated with enterprise's
objectives.
 Thereafter proper ranking of decision-packages based on costs-benefits evaluation.
 Lastly, funds are effectively assigned/allocated based on above steps' outcomes through
following pyramidal-rank framework to assure maximum outcomes/results (Oraka,
Sopekan and Udeh, 2016).
Assessing advantages ZBB has over Traditional based:
Following are several major benefits ZBB has as comparison with traditional-based
budgeting, as follows:
 In traditional based budgeting, budgets for prior year are used as a basis for creation
of budget. Whereas, every time a budget is produced under a zero-
base budgeting, activities are re-evaluated/analysed and therefore began from
zero/scratch offer more credibility in budget.
 In comparison to the traditional-based budgeting procedure, which requires just a few
minor adjustments to the previous budgets, this budgeting strategy lets all divisions
analyse every component of cash flows and measure their operational costs. This
approach works to certain degree to minimize costs, because it provides a realistic image
of costs incurred against the targeted outcomes (Keeney and Keeney, 2020).
 The priority in traditional-based budgeting is on previous expenses levels. On the
opposite, zero-based budgeting emphasises on the development of a fresh financial plan
once budgets are set which provides more accuracy.
 This process contributes to the detection of best alternatives and cost-effective methods
of performing things by removing the unnecessary or inefficient output of operations
(Adah, 2016).
 For traditional-based budgeting, justifications for individual line items including
expenditures are not needed at all. While in zero-based budgeting, reasonable and
proper justifications needed, taking into consideration costs and benefits which offer
reliability in outcomes.
 For traditional-based budgeting approach, top managing personnel makes decisions
regarding amounts that would be spent towards specific product. While on other hand,

under zero-based budgeting, decision relating to spend a certain amount on particular
product is taken by managers which provides quick decision-making.
How enterprise may introduce ZBB in practical terms:
In practical terms for introducing ZBB within an organisation, Employees must be
involved in the process of zero base budgeting. Management should
ask workers/employees what sort of expenses the enterprise would have to pay to find out where
they can manage those expenses. When the company does not benefit from any specific cost, the
same will be excluded from budget (Rasugu, 2019). Further, For instance a construction
equipment corporation introduces zero-based budgeting mechanism calling for deeper review of
the costs of the production department. The organization states that costs of some components
used for its finished products and subcontracted to another supplier rises by 5% per year. The
organization has the potential to produce those components in-house by using its own staff.
When weighing the upsides and downsides of in-house production, the organization discovers
that the components can be made cheaper than outside manufacturer. Rather than deliberately
raising the budgets by a certain amount and trying to mask cost increase, organization can
recognize a scenario where it can determine to manufacture part itself or purchase part from the
outside manufacturer for its final goods. Traditional based budgeting can not allow for the
recognition of cost factors within divisions. Zero-based budgeting is much more granulated
method aimed at defining and justifying spending. Although, zero-based budgeting process is
much more complex, and the expense of the mechanism itself should be balanced against the
benefits that it will generate. Following are several key considerations which help to understand
how enterprise can introduce ZBB, as follows:
 Zero-based budgeting involves a full redesign and re-evaluation of entire budgeting
cycle. Thus, before starting, do research and consult with professionals and employees to
get a broad picture of the level of transition within entity.
 Introducing ZBB would also have implications for business-wide operations and
procedures. Ensure that top officials are on track with need to transitions, recognize the
advantages, and facilitate changes in all divisions.
 Allow enough time to assess the effect of transition in all aspects of industry. Be sure
managers been careful about implementation process, the end outcomes, and how they
are going to get there (Ibrahim, Ashigar, Bello and Mamuda, 2017).

 Developing managing teams/group on board within an organisation is not
enough but enterprise do need to make sure that group/team members
are actively involved in attempt to gain their buy-in. Keeping them aware, explain the
logic behind the move, and ensure that everyone acknowledges the impacts.
Thus by considering all the above discussed points and instances, an enterprise can
effectively introduce Zero-based budgeting process.
CONCLUSION
From above study this has been articulated that budgeting is key aspect of business
enterprise which enable managers to take effective decisions. Often business leaders launch their
businesses with a surge of hope and ambition, but without well planned out budgeting, they feel
it difficult to draw up a effective actions strategy. It's easier to be dumbed down in every day
issues when operating an organisation and overlook a larger picture. Successful companies
devote resources to develop and execute budgets, formulate and review strategic strategies and
periodically track their financial condition and organizational performance. Budgeting defines
existing available resources, offers an estimation of spending and predicts upcoming revenues.
By pointing to budget, enterprises can assess output against expenditures and insure that funds
are sufficient for projects that promote enterprise progress and growth. This allows the company
owner to focus on cash flows, reduce costs , boost profitability and rising investment yields.

REFERENCES
Books and Journals:
Dokulil, J., 2016. Budgeting Process in the Business Environment. In Conference Proceedings
DOKBAT (p. 111).
Ibrahim, M.M., 2019. Designing zero-based budgeting for public organizations. Problems and
Perspectives in Management, 17(2).
Oraka, A.O., Sopekan, S.A. and Udeh, F.N., 2016. Zero-based budgeting: Pathway to
sustainable budget implementation in Nigeria.
Adah, A., 2016. Zero-based Budgeting System: Is Budgeting System the Determinant of Budget
Implementation in Nigeria?. International Journal of Economics and Financial
Research, 2(11), pp.192-198.
Rasugu, E.N., 2019. Factors Affecting Implementation of Zero-Based Budgeting In Chemical
Organizations: A Case of Diversey Eastern and Central Africa Limited (Doctoral
dissertation, United States International University-Africa).
Ibrahim, M., Ashigar, A., Bello, B.M. and Mamuda, A.U., 2017. Zero-Based Budgeting is a
Panacea to Fiscal Distress: Do the Perceived Benefits Significantly Influence its
Adoption in Borno State?. Saudi Journal of Business and Management Studies, 2(10),
pp.943-950.
Keeney, K.P. and Keeney, M.S., 2020. ADVANCING ADMINISTRATIVE ETHICS
THROUGH NEEDS-BASED BUDGETING PRACTICE. Ethics for Contemporary
Bureaucrats: Navigating Constitutional Crossroads.
Sova, M., 2019, November. BUDGET ANALYSIS CASH FLOW WITH MODEL ANALYSIS
BY MILLER AND ORR AS A MAIN ELEMENT SUPPORTING POLICY
OFTIMIZATION, PLACEMENT OF FOUND AND DEBT MANAGEMENT AT
THE PT JASA MARGA (PERSERO) Tbk. In Proceeding International
Conference (Vol. 1, No. 1, pp. 878-883).