Finance Report: Zero Based Budgeting, Justification of 15-30% Addition

This finance report delves into the concept of zero based budgeting (ZBB), contrasting it with conventional budgeting methods. It outlines the ZBB process, emphasizing the importance of validating all budgeted expenditures from a zero base, rather than relying on the previous year's budget. The report highlights the benefits of ZBB, such as identifying cost-effective actions and eliminating waste. Furthermore, it explores the justification for adding a supplementary 15% to 30% to ZBB, arguing that this addition can mitigate risks associated with uncertain savings and accommodate unexpected complications. The report references several academic sources to support its arguments and provides a comprehensive overview of ZBB, making a case for its practical application in financial planning and decision-making.

Running head: FINANCE
Finance
University Name
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Authors’ Note

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Outline of zero based budgeting
Zero based budgeting can be considered to be overturned tactic of conventional planning as
well as process of making decision with regard to processes of budget. Particularly in
conventional budgeting executives start by assessing accounts of prior years and carry out
adjustments and rectifications founded on expectations of performance. The designed budget
of the prior period is subsequently regarded to be the base or the groundwork (initial
beginning point). Again, in this process of zero based budgeting executives involved have the
necessity to validate all the budgeted expenditures and not only the alterations in the budget
that is the financial account of the prior period (Miller, 2018). Essentially, the groundwork in
zero based budgeting is not the past year’s budget but instead it is zero. This scheme helps in
finding out the cost effective ways to enhance actions, examine inflated budgets, detects and
eliminates wastage as well as outdated operations.
Use of zero based budgeting
Zero Based Budgeting helps in allocating funds founded on program efficiency as well as
necessity rather than history of the budget (Miller, 2018). Zero based budgeting engages in
undertaking reassessment of every line item of flow of cash statement and substantiating all
expends that has to be incurred by the corporation.
Concept and justification of adding a supplementary 15% to 30%
The project of adding a supplementary 15% to 30% to zero based budgeting can be said to be
justified as this can aid in averting the risk when potential savings of firms are uncertain
(Callaghan et al., 2014). Adding 15% to 30% can in that situation help in making room for
unexpected complications and unanticipated disruptions.
Ekanem (2014) recommends that addition to zero budget can prove to be effective as this can
aid in justification of expenses for each and every new period. Budgets are mainly prepared

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for understanding what is required for the future period, irrespective of whether the budget is
higher or lower than the earlier one. In place of blindly enhancing the budget by a specific
percentage and masking the cost augmentation, the corporation can recognize a situation in
which it can decide to make the part itself or purchase the part from the external supplier for
the end products. In this case, the maker of zero based budgets can identify different drivers
of cost and can add additional amount for recognizing and substantiating unexpected
expenses.
A basic necessity of zero based budgeting process is that managers can prepare required
budgets for the cost of carrying out the operations at the lowest possible cost (Glass et al.,
2014). Also, there is need to calculate both costs as well as benefits of making a specific
business decision that can direct the way towards incremental enhancement from that
particular level. As the lowest possible cost is taken into consideration, addition of 15% to
30% can help in meeting the requirements of the contingent situations. Glass et al., (2014)
suggest that utilizing zero based budgeting is necessarily cutting or else lessening a specific
budget to ribbons. However, the reality is that a specific amount of cutting of budget
primarily relies on what the corporation/government unit wants to undertake. Also, budget
cutting also depends to certain extent on top down target of savings. Therefore, it can be
hereby said that this scheme can necessarily bog down a business and stop the same from
undertaking anything else (or meet any unexpected business exigencies).

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References
Callaghan, S., Hawke, K., & Mignerey, C. (2014). Five myths (and realities) about zero-
based budgeting. McKinsey & Company, 2.
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), 11-19.
Glass, V., Stefanova, S., & Prinzivalli, J. (2014). Zero-based budgeting: Does it make sense
for universal service reform?. Government Information Quarterly, 31(1), 84-89.
Miller, G. (2018). Performance based budgeting. Routledge.