Zero Based Budgeting Emerged To Overcome The Limitations Of Incremental Budgets Accounting Essay

Zero Based Budgeting Emerged To Overcome The Limitations Of incremental Budgets history EssayZero- found work outing emerged to overcome the limitations of incremental budgets. This approach requires that every activities ar reassert and prioritized before finiss are taken relating to the amount of options allocated to distributively activity. Besides adopting a zero- bagd approach zero-base budgeting also focuses on programmes or activities instead of functional surgical incisions based on line-items which is a feature of traditional budgeting. Programmes normally relate to assorted activities undertaken by municipal or government nerves.Zero-based budgeting works from the premise that project expenditure for existing programmes should start from base zero, with each years budgets cosmos compiled as if the programmes were being launched for the first time. The budgetees should present their requirements for appropriations in such a fashion that all funds squeeze out b e allocated on the flat coat of speak to-benefit or some similar kind of evaluative analysis. The cost-benefit approach is an blast to ensure value of money, it question long-standing assumptions and serves as a toll for consistently examining and perhaps abandoning any unproductive projects.Thats why more and more non-profit do organizations, including Oxfam Hong Kong, consider using Zero-based budgeting as an approach to judge a vanquish solution of the organizations.Background of Oxfam Hong KongOxfam Hong Kong is one of non-profit making organizations. It is an independent international reading and humanitarian organization working against poverty and related injustice. It recognized that much poverty is caused by injustice and that poverty alleviation requires economic, social and geomorphological change. It worked with people facing poverty and with partner organizations on development, humanitarian, policy advocacy and public education programmes.How zero-based budget ing could be used at Oxfam Hong KongMost organizations, including Oxfam Hong Kong, may use incremental budgeting arrangement for their budgetary process. However, this approach has a life-threatening drawback. The budgetary process for coming year usually uses previous budget storage tryst as a basis of allocation. That may incurred increase or decrease in budget for the coming year based on the budget allocation. It is because the fortune of allocation is without full examination of this allocation basis.Incremental budgeting system assumes that the situation will continue in the same way. Zero-based budgeting could be used to remedy this serious drawback in incremental budgeting system.The beat able activities in Zero-based budgetingTo use zero-based budgeting as an approach, some activities are very capable to use. For exampleLimited resource of laboursOxfam Hong Kong is a non-profit making organization that it is incessantly faced with limited resource of labours becau se major labours are volunteers that it often has non salaries. To organize an activity such as donation of poverty countries, it is a heroic project that it needs a lot of human resource. The allocation of resource is very important if the organization is faced with limited resource of labours. Zero-based budgeting shag efficiently allocate resource of each department. Zero-based budgeting will cook and evaluate decision packages of human resource and appropriate allocation by be of decision packages.Judgment of onus or in-houseOxfam Hong Kong always creates a lot of activities about the donation of poverty countries. To encourage more donations, the organization always produces some souvenirs to donators. The souvenirs are also a part of cost that Oxfam Hong Kong will be considered to produce by consignment or in-house processing. It is because Oxfam Hong Kong would belike choose inexpensive method. It is very suitable to use zero-based budgeting to the identification. Alth ough incremental budgeting system or activity-based budgeting tramp determine the cost of production by consignment or in-house processing, it only use department as a base which is less right than zero-based budgeting. It is because zero-based budgeting is based on activity which is more accurate than incremental budgeting system or activity-based budgeting.The advantages of Zero-based budgetingMore and more non-profit organizations choose Zero-based budgeting instead than Incremental budgeting for their decision making because Zero-based budgeting has following advantages which Incremental budgeting is ignored.Inappropriate activities are not undertakenTraditional budgeting trends to extrapolate the past by adding a percentage increase to the current year. Zero-based budgeting avoids the deficiencies of incremental budgeting and represents a move towards the allocation of resources by need or benefit. Thus, unlike traditional budgeting the level of funding is not taken for gran ted. For example, when Oxfam Hong Kong has limited resource such as labour hour, the allocation of resources is being very important. Then Zero-based budgeting can help Oxfam Hong Kong to select the best solution of the allocation by ranking of decision packages. Finally, inappropriate solutions are not adopted.Enhance penuryThe documentation of decision packages also leads to a deeper staff and management knowledge of all the operation and activities of the organization and can enhance communication, participation and therefore motivation. Oxfam Hong Kong can in in a flash motivate the staff. It is because all departments especially management department in Oxfam Hong Kong need to communicate with early(a) departments to make a consensus of the decision packages.Concerning value for moneyZero-based budgeting focuses attention on outputs in relation to value for money. Through this value for money approach, unable and obsolete operations are identified so that wastage can be elim inated and a more efficient allocation of resources to activities and departments can be achieved. Therefore, Oxfam Hong Kong can indirectly reduce the cost of selection of decision because the wastage is reduced and the allocation of resource is being efficient.Problem of Zero-based budgetingActually, no method is perfect. Zero-based budgeting also exists problems that Oxfam Hong Kong should be faced.More costly and time consumingThe preparation of decision packages can generate a great volume of paperwork especially for a large project or activity and will require a sizable management skill. Therefore, Oxfam Hong Kong should be provided more training and education about concepts of exercise of Zero-based budgeting to the management department because Zero-based budgeting must be clearly understood by managers at various levels to be successfully implemented. The running cost is directly increased. Also, Zero-based budgeting will requires gathering, analysis and evaluation of lar ge amounts of data that the management department faced with much workload and it is very time consuming.Problems of identifying ranking packages innate judgment and political pressure are unavoidable in ranking packages and allocation of resources and may create departmental conflicts. Different types and natures of activities across incompatible departments, particularly with qualitative rather than quantitative benefits, may give advancement to the problem of ranking. Oxfam Hong Kong is confused of the decision packages because it is difficult to define decision units and decision packages and sometimes subjective judgment is needed. Also, management may be exaggerated skews the results if it is unreliable. Then, the decision packages are became inaccurate.Relationship between management and staff deteriorationThe questioning attitude of zero-based budgeting is not always acceptable to staff or management because they may view it as a threat to their existing implied rights. For example, management department and accounting department have different ideas of decision packages. Each department does not agree with the other side ideas. The cooperation and motivation among the management and staff may deteriorate. Therefore, it may influence the relationship of each department in Oxfam Hong Kong.http//www.oxbridgewriters.com/essays/accounting/zero-based-budgeting.phphttp//www.finweb.com/financial-planning/pros-and-cons-of-zero-based-budgeting.htmlhttp//www1.cimaglobal.com/Documents/ImportedDocuments/fm_nov07_p48-53.pdf