After incorporating a company; sales, general and administrative part are considered at the leading edge which generally outdoes the expenses. This shoots back at the company to reduce costs, increasing pressure on the cadre to increase productivity etc.
In order to eschew from such quandary, a company can build a structure of cost management from the beginning.
Here, we will take the floor to confer about one such culture for cost management for business i.e. zero-based budgeting (ZBB) and how helpful is it for businesses.
Zero-Based Budgeting (ZBB)
In this process, a company prepares its budget to endorse more efficiency in the budgeting structure from the beginning.
The company take account of all its expenditure and plans all the funding and redesign the budget based on its competitiveness and cost structures.
At the beginning of every year, the company forms a new budget and reviews every structure which does not include any previously authorized funds.
The process involved in zero-based budgeting:
- Identifying the objectives of business
- Creating and evaluating alternative methods to complete each objective
- Evaluating the alternative funding levels, that depends upon the planned levels
- Setting up the priorities in order to conform to such budget and to increase efficiency
How is ZBB helpful for business?
There are certain advantages of ZBB that are mentioned as under:
- It metes out alternative procedures to the administrator to perform and complete the aim of the activity.
- It alters the administrators to differentiate between fundamental and trivial activities so that they can be achieved as per need.
- It shifts the focus of administrators on other small activities that were out of purview earlier.
- It makes the culture more probable that all aspects are examined periodically.
- It allocates the funds to most needed areas as compared to the overall activities.
ZBB is considered salutary for the private sectors as private companies do not face any restrictions with reference to the government policies.
The main reason behind the same is that private companies have human resources, cost, and training that is required for this process.
Though ZBB is beneficial for the private sector still government agencies too can accredit a team of advisors and consultants etc. to examine all aspects periodically similar to the private sector.
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Note – Please note that the above article is for education purpose only. This is based on our interpretation of laws which may differ person to person. Readers are expected to verify the facts and laws