Zero Based Budgeting: Definition, Process, and Advantages

CONTINENGTAL
HOTEL BUDGET
PLANNER

Contents
INTRODUCTION...............................................................................................................3
TASK:..................................................................................................................................3
1. Cash flow forecast for the Hotel with respect to forthcoming year: -.............................3
(Covered in Excel)...........................................................................................................3
2. Report on Zero Based Budgeting:...................................................................................3
(A) Define and evaluates the process involved in Zero-based budgeting:......................3
(B) Advantage of Zero-based budgeting over the traditional Method:...........................5
(C) Introduction of such technique by the organisation in practical terms:....................7
CONCLUSION....................................................................................................................8
REFERENCES....................................................................................................................9

INTRODUCTION
Zero based budgeting is the method in which all the expenses must be validates
for the new period. It is firstly introduced during the year 1960 by Peter Pyhrr who is the
former Texas instruments accounts manager. Zero based budgeting will stats from zero
and it will justify all the expenses which is incurred by the entity during its operational
period. Zero based budgeting will enable top to bottom strategic approach so that project
which is under consideration performance can be analysed strategically (Lester, 2018).
Zero based budgeting can be created in excel too starting from entering the income or
expensed in excel workbook, then input the expected budget, then start making changes
in the budget until the final budget will becomes zero and then the final step is to monitor
the actual income or expensed accordingly. In this report the significance of zero-based
budgeting has been explained by comparing the same with traditional approach the
business concern follows. Also, this report highlights about the advantage of ZBB to the
organisation so that business processes can be improved.
TASK:
1. Cash flow forecast for the Hotel with respect to forthcoming year: -
(Covered in Excel)
2. Report on Zero Based Budgeting:
(A) Define and evaluates the process involved in Zero-based budgeting:
Zero-based Budgeting (ZBB) is defined as a method of budgeting which
requires each cost element to be specifically justified, though the activities to which the
budget relates are not being undertaken for the first time. The cost of each activity has to
be justified and without justification, the budget allowance is zero (Crowley and
Hudgins, 2022).
Zero based budgeting differs from the conventional system of budgeting because it
mainly starts from scratch or zero and not on the basis of trends or historical levels of
expenditure. In the customary budgeting system, the last year’s figures are accepted as
they are, or cut back or increases are granted. Zero based budgeting on the other
hand, starts with the premise that the budget for next period is zero so long the

demand for a function, process, project or activity is not justified for each rupee from
the first rupee spent.
Zero-based Budgeting (ZBB) is an emergent form of budgeting which arises to
overcome the limitations of incremental (traditional) budgeting system.
ZBB is an activity-based budgeting system where budgets are prepared for each activity
rather than functional department. Justification in the form of cost benefits for the
activity is required to be given. The activities are then evaluated and prioritized by
the management on the basis of factors like synchronisation with organisational
objectives, availability of funds, regulatory requirement etc (Gupta, Tyagi, and Singh,
2019).
ZBB is suitable for both corporate and non-corporate entities. In case of non- corporate
entities like Government department, local bodies, not for profit organisations, where
these entities need to justify the benefits of expenditures on social programmes like
mid-day meal, installation of street lights, provision of drinking water etc.
In case of corporate entities, ZBB is best suited for discretionary costs like research
and development cost, training programmes, advertisement etc.
synchronisation with organisational objectives, availability of funds, regulatory
requirement etc.
ZBB is suitable for both corporate and non-corporate entities. In case of non- corporate
entities like Government department, local bodies, not for profit organisations, where
these entities need to justify the benefits of expenditures on social programmes like
mid-day meal, installation of street lights, provision of drinking water etc. In case of
corporate entities, ZBB is best suited for discretionary costs like research and
development cost, training programmes, advertisement etc.
The process involved in zero based budgeting are as under: -
 Identification and description of Decision packages: Decision packages are the
programmer or activities for which decision is required to be taken. The programmer
or activities are described for technical specifications, financial impact in the form of
cost benefit analysis and other issues like environmental, regulatory, social etc.