Differentiate between Zero Based Budgeting and Incremental Budgeting. Why they are not adopted now? Examine.

Published: February 6, 2016

Model Answer:
Zero-based budgeting is a method of budgeting in which all expenses for each new period are considered and justified and no reference is made or considered of previous years. Incremental budgeting is a way of budgeting where the future allocations are based on current allocations. The new budget is prepared by a fairly simple calculation, which increases or decreases the current budget by certain amounts or percentages in reference to previous year budget.
ZBB is a good technique of budgeting and was adopted in India in 1983; but it could not be implemented successfully because ZBB does not fit into organizations with long range objectives. Proper attention, Commitment form management and trained personnel can better implement the ZBB process. Similarly, Incremental budgeting focuses on aggregate trends and fails to analyze revenue and expenditure changes. Although there are many criticisms of incremental budgeting, it is being followed in many countries. (145 words)

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