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Budgeting without heritage

January 7, 2017

A comprehensive approach to zero based budgeting
 

“We didn't actually overspend our budget. The allocation simply fell short of our expenditure.”

In organizations, budgeting is traditionally done with a number of basic underlying assumptions.

 

Budgets are usually heritages; they are produced on the basis of the figures of the year before. Furthermore, they often are not based on actual activities and strategic and operational planning, but on simply cutting or increasing the figures of the year before. “Allocations falling short of expenditures” are a direct consequence of these downsides of budgets.

 

Zero based budgeting is a reversed approach of traditional planning and budget decision-making. In traditional budgeting managers start with the budget of last year and correct income and expenditures on the basis of expectations. Last year’s budget is seen as the baseline, the starting point. In ZBB, managers are compelled to account for all budgeted expenditures; not just the changes in the budget of the year before. In ZBB, the baseline is not last year’s budget but ‘zero’. ZBB requires a lot of documentation and accountability and is common for governmental and non-profit organizations. However, the idea of starting each budgeting period with a clean slate and reorient on the organization’s activities provides for an activity based and fresh financial budget and planning.

 

In this course, we will emphasize the basic process and methodology of ZBB. Furthermore, the advantages and disadvantages will be highlighted and elaborated upon. We will discuss the particularities of ZBB and elements to keep track of during the process by way of practical case examples and issues. Finally, and most importantly, we will focus on how to implement ZBB in an organization by defining project requirements and setup.

  • Part I: Introduction to zero based budgeting

  • The first part contains an introduction to ZBB. All general aspects of ZBB will be discussed, as well as advantages and disadvantages of the methodology. The origin and applicability to various organizations will be highlighted.

  • Part II: Identifying the methodology and the budgeting process
    This part will end with an implications session to determine the implications and requirements for the organization.
    The second part we will discuss the budgeting process and the basic ZBB methodology. We will identify problems and issues. Through a practical example and exercise the process will be explained and studied.

  • Part III: Effective implementation: tips and tricks and particularities of ZBB
    We will end with an implications session to determine the issues and consequences for implementation of ZBB.
    The third part, we will investigate ways to effectively implement ZBB. Particular issues, tips and tricks will be presented and studied. By way of practical examples, we will discuss these cliffs to cross when considering implementing ZBB.

  • Part IV: Implementing zero based budgeting
    Finally, we will come to define ways for choosing the right way to implement ZBB.
    The fourth part will have a workshop nature. In a workshop setting, we will go through a brainstorm and process definition; compiling the results of the previous implications sessions, resulting in a rough implementation plan for ZBB.

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