What are the differences between traditional budgeting system and zero based budgeting system?

Answer 1

The Traditional Budgeting refers to a list of all planned expenses and revenues. It focuses on what the managers tend to spend rather on what resources they need. It fails to identify wastes, incoming workloads and cost drivers; it does not support continuous improvement and appears to have general lack of ownership and buy - in. Critics also found out that it is very time consuming for the benefits to be achieve. Therefore, traditional budgeting practices doesn't appear to be connected to the over all organizational strategy. Another major flaw of it is that it assumes that the current year's expenditure level is justifiable although it may not be true because it may be high or low. While in Zero Based Budgeting it is always assumes that the expenditures is always based on zero. It aims to achieve an optimal allocation of resources that incremental and other budgeting systems cannot achieve. Zero Based Budgeting provides an efficient allocation of resources, as it based on the needs and benefits. It also identifies and eliminates wastage and obsolete operations, increases staff motivation as well as the communication and coordination within the organization, detects inflated subjects and drives managers to find out cost effective ways to improve operations. But despite of all the benefits of it, there are also criticisms and drawback against it such as it may lead to micro management, it involves a huge amount of money and it may lead to a material shift in the use of resources.