PM – BPP Questions 200 – Zero Based Budgeting

Which two do you think are right?

Costs where there is little discretionary spending – is incorrect
It is suitable for allocating resources in areas were spend is discretionary, i.e. non-essential. For example, research and development, advertising and training.

Public sector is better able to afford the high cost of ZBB
Absolutely not they have to be very cautious about costs. A major problem is that these organisations often do not generate revenue but simply have a fixed budget for spending within which they have to keep (i.e. a capital rationing problem).

ZBB is a top-down approach more common in public than private.
Not accurate!
It’s both approaches of top-down & bottom up.

Top-down budgeting involves decisions made by upper management to ensure consistency and alignment with strategic goals. BUT top-down budgeting may not fully utilise the knowledge and expertise of lower-level employees who are closer to the day-to-day operations. Their valuable insights and ideas may be overlooked, resulting in missed opportunities for cost savings or process improvements.
Bottom-up budgeting involves input from various departments or individuals, encouraging employee participation and leading to a more accurate budget.
BUT it can be time-consuming and resource-intensive, as it involves gathering input from multiple individuals or departments. This can slow down the budgeting process and may require additional coordination efforts. Furthermore, there is a risk of bias or lack of coordination among different departments, leading to conflicting priorities or inefficient resource allocation.

ZBB aims to eliminate inefficiencies, identify cost-saving opportunities, increase cost transparency, and improve resource allocation.

Your welcome