Zero-base budgeting
The zero-based budgeting or zero base budgeting is an analysis and planning method in cost management is used. The budget is planned from scratch (planning from base zero). This is in contrast to the usual planning, which is based on the currently available budget. Zero-base budgeting was developed by Peter A. Phyrr in the 1970s.
background
The budgets for the coming period should be planned for the departments of a company or as part of the negotiation of public budgets. Often the basis for the award is the previous budget. While this process is simple, it can create enormous inefficiencies. No department tries to reduce its need for benefits, as it will be "punished" for it in the next period.
Procedure
Each department has to define different measures for the coming period. These measures can have different alternatives. (e.g. carry out market study: minimum, normal, special solution). Then the measures are assigned priorities ( ranking ). The total budget is now divided among the most important measures until it is used up. Particularly important measures are carried out with the special solution, rather unimportant measures with the minimal solution.
rating
The constant rethinking of the measures means that there are fewer inefficiencies in the departments. An expansion of the overall budget is possible at any time and does not mean a new allocation effort. However, the total cost of this method is considerably higher than with conventional allocation processes. Defensive mechanisms and skepticism also often prevail among employees, as they now have to repeatedly prove and justify their budget needs. This is why there are often compromises in practice between zero base budgeting and conventional allocation.
advantages
- Resource allocation
- cost cutting
- promotes communication in the company
disadvantage
- high expenditure of time and effort
- subjective assessment of the ranking
- Interactions between the units are not taken into account
literature
- P. Horváth: Controlling. 14th edition. Vahlen, Munich 2019, ISBN 978-3-8006-5869-5 .
- A. Preißner: Practical knowledge of controlling. 6th edition. Hanser, Munich 2010, ISBN 978-3-446-41712-0 .