introduction:

A zero-based budget is a budgeting method in which all expenses must be justified for each new period. This means that all expenses must be re-evaluated each period and that all expenses, including those carried over from the previous period, must be approved again. The purpose of this approach is to ensure that every rand spent serves a specific purpose and adds value to the organization.

Steps Required

• Step 1 – Identify goals and priorities: The first step in implementing a zero-based budget is to identify the organization’s goals and priorities for the upcoming period. This might involve setting specific performance targets, such as increasing revenue or improving customer satisfaction.
• Step 2 – Determine resources needed: Once the goals and priorities have been identified, the organization can determine the resources (e.g., staff, materials, etc.) needed to achieve those goals. This might involve conducting a thorough analysis of the organization’s operations and identifying any bottlenecks or inefficiencies.
• Step 3 – Allocate resources: Based on the resources needed to achieve the organization’s goals, the organization can then allocate those resources accordingly. This might involve creating a detailed budget plan that outlines the specific resources needed for each goal or priority.
• Step 4 – Eliminate unnecessary expenses: As part of the zero-based budgeting process, the organization should also review its expenses to identify any that are not directly tied to its goals and priorities. These expenses should be eliminated or significantly reduced in order to optimize the organization’s spending.
• Step 5 – Monitor and adjust: Once the zero-based budget has been implemented, the organization should continuously monitor its progress and make adjustments as needed. This might involve re-evaluating the allocation of resources or identifying new ways to achieve its goals more efficiently.

Drawbacks:

However, implementing a zero-based budget can be time-consuming and may require significant changes to an organization’s budgeting and decision-making processes. It may also require significant upfront investment in order to gather the necessary data and determine the most effective allocation of resources.

CONCLUSION:

Overall, a zero-based budget can be a useful tool for organizations looking to optimize their spending and achieve their goals in a more efficient and effective manner.

It’s important to note that implementing a zero-based budget may require significant changes to an organization’s budgeting and decision-making processes, as well as upfront investment in order to gather the necessary data and determine the most effective allocation of resources. However, the long-term benefits of this approach can be significant, helping organizations to optimize their spending and achieve their goals in a more efficient and effective manner.

The video below explains the above with examples for you.

Podcast