Zero based budgeting

NN Ltd manufactures and markets a range of electronic office equipment. The company currently has a turnover of $40 m per annum. The company has a functional structure and currently operates an incremental budgeting system. The company has a budget committee that is comprised entirely of members of the senior management team. No other personnel are involved in the budget setting process.

Each member of the senior management team has enjoyed an annual bonus of between 10% and 20% of their annual salary for each of the past five years. The annual bonuses are calculated by comparing the actual costs attributed to a particular function with budgeted costs for that function during the twelve month period ended 31 December each year.

Explain how the implementation of a ZBB system in NN Ltd may differ from the implementation of such a system in a not for profit health organization.

Can you explain the answer in simple language. I didn’t understand this concept

(2) Identify and discuss the behavioural problems that the management of NN Ltd might encounter in implementing a system of zero based budgeting , recommending how best to address such problem in order that they are overcome ?

My ans : Zero based budgeting is the budgeting approach where the budget has to be prepared from scratch. It requires the evaluation of costs and activities. It is possible that maangers could manipulate the financial figures to make the performance look better especially when the good performance yields a bonus. This could be done by underestimating costs and overestimating revenues leading to budget slack.
Budgetary slack will lead to favourable results as the budgeted costs are far higher than the actual costs. A new finance director has recently been appointed for the implementation of ZBB , however , he does’nt have any experience of how the ZBB works . Errors could be made during the budgeting process and resources may not be used up efficiently . Staffs need to be given training to construct decision packages. With ZBB approach , the activities and costs needs to be justified to make appropriate use of resources . Zbb involves the cost benefit analysis of each packages in order to rank the packages in the decreasing order of benefits.
Ranking may be difficult if packages are qualitative in nature . All these processes takes time and money which needs to be looked at before considering adopting the zero based budgeting.

management can use incremental budgeting for every three to five years and switch to zero based budgeting when a major change occurs.

Is this answer fine ? In the revision kit they have provided with lots of points. But I can’t figure out the most valid points required to answer this question. Can you briefly explain the main points that I need to write for this part of the question