3 major steps in Zero Bases Budgeting

3 major steps in Zero Bases Budgeting are:

1. Activities are divided into part known as “Decision Packages”. Each decision package contains all the information about an activity including the purpose, cost, benefit and possible outcome if the activity is approved or disapproved.

2. All activities are evaluated and ranked on the basis of benefit to the organisation. The activities with highest ranks will get immediate and first attention and the activities at the lowest ranks would get the lowest priority including elimination can no longer be justified relative to its costs.

3. Allocation of resources-once the priorities have been established then the organisation’s resources is budgeted according to these priorities. The Zero base budgeting has many advantages over the conventional budgeting techniques as follows

a) It provides greater justification whether and a activity should be continued or terminated.

b) It allows for greater participation in the planning process.

c) Since managers must quantity each alternative, the for comparison are objective in nature and hence and evaluation is clear and unambiguous.

d) Low priority activities can be rejected with man without economic losses.