Budgeting Analysis: Zero-Based vs. Traditional Budgeting Report

This report provides an in-depth analysis of budgeting, specifically focusing on zero-based budgeting (ZBB) and its comparison with traditional budgeting approaches. The report begins with an executive summary and table of contents, followed by an introduction that highlights the importance of budgeting in balancing organizational expenses and income. The core of the report explores ZBB, defining it as a method that justifies each expense from a zero base, emphasizing its cost-effectiveness and its advantages over traditional budgeting, such as flexibility and lower costs. The report contrasts ZBB with traditional methods, showing how ZBB starts from scratch and justifies both old and new expenses, leading to better resource allocation and cost optimization. The report concludes by summarizing the advantages of ZBB and its flexibility for organizational departments. It also includes a reference list of books and journals. The study is designed to help businesses manage their budgets and make informed financial decisions, providing a clear understanding of the benefits of ZBB.

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Executive Summary
Budgeting refers top spending plan that is very essential for keeping the business on track.
Budgeting helps the business to keep control over cost and expenditures. Business identifies the
variances using budgeting and take corrective measures according. There are many types of budget
developed after the traditional budgeting to overcomes the defaults existing in the budget. Newer
budgets have helped the businesses to have more accurate and reliable results.
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Table of Contents
Executive Summary...............................................................................................................................1
1. Introduction....................................................................................................................................3
2. Zero Based Budgeting....................................................................................................................4
2.1 Zero-based budgeting..................................................................................................................4
2.2 Advantages of Zero-based budgeting over Traditional Based......................................................4
2.3 How the Organisation Might introduce Zero-based Budgeting....................................................4
3. Conclusion.....................................................................................................................................5
4. Reference List................................................................................................................................6
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1. INTRODUCTION
Budgeting is useful in balancing the expenses with the specific set of income of the
organization. It is predetermine plan to ascertain the income and expenditure of the
organization for specific period (Heinrich, Garton and Martin, 2016). This study will include
proper budget plan which helps in determining the income and expenditure of the
organization. Furthermore, this study also evaluates the process of Zero based budgeting.
Moreover, this study assess the advantages of zero based budgeting over traditional based
budgeting.
5 star Spa Resorts hotel is established in the UK and Europe. It tends to have 80
identical double rooms with the standard rate of £295 per night. It tends to provide wide
range of quality hospitality services to the people.
2. ZERO BASED BUDGETING
2.1 Zero-based budgeting
Budgeting is considered to be one of the prominent procedure which is very useful in the
creation of the specific plan in order to spend the money (Surianti, and Dalimunthe, 2015).
The spending plan of the organization is referred to as a budget. It is very useful in
determining the advances which helps in predicting whether the individual tends to have
enough money to properly carry out the operations of the business. Zero-based budgeting is
referred to as an effective measure which in turn is considered to be very useful in justifying
each expenses of the organization (Zinyama and Nhema, 2016). The process of the ZBB
tends to start with the zero base or from the scratch. Each function within the organization is
usually analysed for the cost and needs associated with each function. The process of the zero
based budgeting in turn tends to start from the zero base where all the budget in turn tends to
start from the scratch without taking into consideration past data associated with the specific
activity. Zero based budgeting is one of the most cost effective approach and is very useful in
the decision making (Clark, Menifield and Stewart, 2018).
2.2 Advantages of Zero-based budgeting over Traditional Based
Traditional budgeting and Zero based budgetingare considered to be as one of the pre-
dominantly used budgeting techniques which is very useful in properly allocating the capital
to the various different departments of the organization (Mohamed, Kerosi and Tirimba,
2016). One of the major advantage of the zero based budgeting is that they are considered to
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be as the flexible budgets which is very useful in carrying out focused set of operations.
Another major advantage is that, it tends to emit lower cost when compared with the
traditional based budgeting. Zero based budgeting tends to largely vary from the traditional
based budgeting (Emerling and Wojcik-Jurkiewicz, 2018). The companies tends to create
new budget for the each new period. One of the major advantage associated with the zero
based budgeting is that it helps in lowering the cost by properly keeping in check new and old
expenses of the organization. The cost is considered to be minimal because it does not into
consideration the expenditure of the previous year. This is one of the useful method because
it tends to focus on detecting the inflated set of budget. It is very useful in the efficient
allocation of the resources.
Zero based budgeting is one of the effective approach better than the traditional
budgeting because it is very useful in eliminating and identifying wastage by properly
carrying out of date operations (Miller, 2018). This is one of the appropriate approach
because it very useful in identifying the various possibilities of opportunities for the key
purpose of outsourcing (Zero Based Vs. Traditional Budgeting, 2020). This is one of the cost
centre approach which usually helps in clearly attaining the goals and objectives of the
organization. On the other hand, traditional budgeting tends to take into consideration the
preceding year expenditures as the base for the data points. On the other hand, Zero based
budgeting in turn is considered to take one of the strategic approach which is very useful in
assigning the budgets to various units or departments of the company. Traditional budgeting
only tends to evaluate the only new set of expenditures (Piszczek, 2018). But on the contrary,
Zero based budgeting starts from the scratch and tends to call for the justification of the old
expenses in addition to the new expenses. Zero based budgeting is very beneficial in driving
up the value for the company. This is very useful in optimizing the cost.
2.3 How the Organisation might introduce Zero-based Budgeting.
The management of the 5 start Spa resort hotel can be effectively introduced within the
organization by evaluating all the goals and activities which are supposed to be carried out
within the organization (Hill, 2016). The management of the 5 start Spa resort hotel focuses
on effectively evaluating the every cost area. This way it helps in eliminating and reducing
unnecessary activities at the time of application of Zero based budgeting. At the time of
implementation of the Zero based budgeting, the management of the company will eventually
focus on justifying each components of the budget. This is very useful in examining the areas
which are cost effective and is very useful in driving the cost savings (Hijal-Moghrabi, 2019).
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It is a useful budgeting method to streamline the process of budgeting. It is very useful in
clearly communicating the plans and responsibilities. Zero based budgeting is useful in
providing an effective low risk approach in a well-financed and resourced manner(Heinrich,
Garton and Martin, 2016).
CONCLUSION
From the above conducted study, it has been summarized that, zero based budgeting
has various set of advantages and is considered to be very prominent than traditional
budgeting because it is a very flexible approach and can be easily applied to each
departments of the organization. It is one of the most cost effective approach and tends to
start from the scratch without considering past budget. It has been concluded that, cash
budget is very useful in the avoidance of shortage of capital while carrying business
operations.
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5. REFERENCE LIST
Books and journal
Heinrich, J., Garton, E. and Martin, B., 2016. Betting on Zero-Based Budgeting’s
Trifecta. Bain & Company.
Surianti, M. and Dalimunthe, A.R., 2015. The implementation of performance based
budgeting in public sector (Indonesia case: A literature review). Research Journal of Finance
and Accounting, 6(12), pp.198-210.
Zinyama, T. and Nhema, A.G., 2016. Zimbabwe Performance-Based Budgeting: Concepts
and Success Factors. Public Policy and Administration Review, 4(1), pp.33-60.
Clark, C., Menifield, C.E. and Stewart, L.M., 2018. Policy diffusion and performance-based
budgeting. International Journal of Public Administration.41(7).pp.528-534.
Mohamed, I.A., Kerosi, E. and Tirimba, O.I., 2016. Analysis of the Effectiveness of
Budgetary Control Techniques on Organizational Performance at DaraSalaam Bank
Headquarters in Hargeisa Somaliland.
Emerling, I. and Wojcik-Jurkiewicz, M., 2018. The risk associated with the replacement of
traditional budget with performance budgeting in the public finance sector
management. Ekonomicko-manazerskespectrum. 12(1). pp.55-63.
Miller, G., 2018. Performance based budgeting. Routledge.
Piszczek, M., 2018. Budget Management in Self-Government–Polish Case. Journal of WEI
Business and Economics. 7(2). pp.14-30.
Hill, L.E., 2016. Pioneering a rolling forecast: a North Carolina health system that switched
from a traditional to a rolling budget process found the conversion offered a unique
perspective of its financial picture. Healthcare Financial Management.70(11).pp.58-63.
Hijal-Moghrabi, I., 2019. Why Is it So Hard to Rationalize the Budgetary Process? A
Behavioral Analysis of Performance-Based Budgeting. Public Organization Review.19(3).
pp.387-406.
Online
Zero Based Vs. Traditional Budgeting. 2020. [ONLINE]. Available
through<https://efinancemanagement.com/budgeting/zero-based/zero-based-vs-
traditional-budgeting>
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