Answer: b. means that an agency does not automatically receive its previous year’s base budget.
Explanation: By definition, zero-based budgeting (ZBB) implies commencing a budget from a zero base and justifying each segment of the budget rather than merely adding to historical budgets or actual.
Conventionally, budgets are queried when they show variations from previous years but in ZBB, there is a positive attempt to eliminate inefficiencies and slack from current expenditures.
The concept of ZBB was developed by Peter Pyhor in 1969 and identified the following structured systematic approach to budgeting:
* organisations are divided into sections known as decision unit or expense control units
* decision units are clearly defined
* for each unit, a decision package is defined for the minimum level of spending and this sets the tone for the cost, purpose, and performance measurement and consequences
* similar decision package is defined for incremental allocations to activities
* decision package is specified for alternative methods of performing those activities
* decision packages are ranked
Example of ZBB is: if an organization notices a percentage increase on an expenditure line, the organization can compare all available and suitable alternatives before taking that increase as bona fide, the organization can also consider using its outsourced or internal employees to achieve same purpose. Proper scrutiny is required in ZBB unlike the traditional budgeting process.
There are other types of budgets like rolling and flexible budgeting.
