Zero Based Budgeting Case Study

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Budget plays an important role in an organization. There are lots of activities in an organization, such as marketing, training and purchasing, etc. All of them need resources to activate, so they need plans to allocate resources. These plans call budget. To a profit organization, the aim of budgeting is to maximize profit and minimize cost. However, for a non- profit organization, budgeting is the most important because it allocates resources under limited resources. For this reason, there is a method, Zero based budgeting, can be applied at non-profit organization.

Background of ZBB

Zero based budgeting (ZBB), another name is priority based budgeting. It means that superiors need to justify expenditure and start from zero. The aim of ZBB is to allocate resources to the parts that they need the most (Irons, 2010). For this method, it forces the managers to justify each item and to rank each item based on their importance. Managers can discuss the proposals with staff and decide which one should be started (Chadwick 2001). After that, ZBB is suitable to discretionary cost such as advertising, research and development and
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Moreover, even though a large company, it would also take two to three months to complete the annual budget process and it can consume about 20% of manager’s time (Clarke, 2010). ZBB requires a clean sheet and pre-evaluated about everything. Each Item should be discussed and decided by top management after suggestion from subordinates. Be that as it may, Mr. Chan cannot understand and each opinion. For example, Principal Chan may waste time to understand every staff opinion. Every staff may spend lots of time to re-value after air their opinion. For the three stages I mentioned before, Mr. Chan may take a long time to discuss and rank the options. As you can see that, the preparation under ZBB spends a lot time, effort to carry

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