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Zero-based budgeting

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  1. Introduction
  2. The general principle of zero-based budgeting
  3. Procedure for implementation
    1. Identification of homogeneous decision-making units
    2. Preparation of decision modules for each decision unit
  4. Rank budgets
  5. Budgeting overhead
  6. Advantages and disadvantages of the method
    1. Benefits
    2. Disadvantages

This method is defined as a process of planning and budgeting which requires everybody involved to provide a detailed justification of the entire budget from the overheads to the necessary minimum, in order to achieve the objectives of the company. The purpose is to prove the necessity of the expenditures.

[...] Each member will have to assign a rating from 1 to 6 in each decision module to classify the activity. The score of 6 is attributed to a decision module that is operationally legally binding; The score of 4 is assigned to a module with a less interesting future. Modules that receive this rating would be the first to be approved if the level of spending increased. The acceptance threshold is therefore situated at 4. The modules that are rated as and 4 are accepted, and others are rejected. [...]


[...] Budgeting overhead This involves anticipating capital expenditures in personnel costs and overhead costs (office supplies, electricity, water, gas, field services) - Advantages and disadvantages of the method Benefits It allows managers to challenge the existing budgets of the services they are responsible for and break with the past to better understand the future; It leads the staff to become more involved in the budget process; It helps control the increasing overhead costs by establishing a relationship between the level of activity and costs budgeted by the department, and evaluating the results; It allows the defining and delineating of the tasks of general services through identification of the activities of each service. Disadvantages Zero-based budgeting is generally cumbersome to implement. To make the method more operational, functional activities or certain services may be excluded from its scope. Also, it could be used periodically (every [...]

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