The budget does
not necessarily use historical variances. It requires that every line item be approved by management and that every amount be fully considered before making an assumption or prediction about
anticipated expense, revenue, or other item.
Advantages
-
Efficient allocation
of resources, as it is based on needs and benefits rather than history.
-
Drives managers to
find cost effective ways to improve operations.
-
Detects inflated
budgets.
-
Increases staff
motivation by providing greater initiative and responsibility in decision-making.
-
Increases
communication and coordination within the organization.
-
Identifies and
eliminates wasteful and obsolete operations.
-
Identifies
opportunities for outsourcing.
-
Forces cost centers
to identify their mission and their relationship to overall goals.
Zero based Helps in
identifying areas of wasteful expenditure, and if desired, can also be used for suggesting alternative courses of action.