Presented by:- Anusha Hospete

Rajat KhannaAnubhav Sharma

Sahil Chopra

Definitions Method for preparing cash flow budgets and operating

plans which every year must start from scratch with no

pre-authorised funds

Budgets which are developed from zero base ie at the

beginning of budget process, all budget accounts

values are zero.

Technique of planning and decision making which reverse the process of traditional budgeting.

Every department function is reviewed comprehensively.

All expenditure must be approved Enhance the financial productivity of

resources Eliminate wasteful expenditure

Zero based Budgeting Traditional Budgeting

Each expenditure to be

justified

No present commitment

No Balance to be carried

forward

Activities Ranked according to

priority

Sanctioned based on previous

year expenditure

Justify increase over last year

Past sales and expenditure

trends are assumed to be

continued

Previous years balances are

carried forward

Advantages Disadvantages

Efficient allocation of

resources

Finding cost effective

techniques

Detects Inflated budgets

Eliminates wastefull and

obsolete operations

Increase communication

within organisation

Time consuming and

exhaustive

Forced to justify every details

of expenditure (R&D suffers)

Training is necessary for

managers

Honesty of mangers must be

reliable

DefinationMaintaining a minimum level of inventory as part of a goal to

reduce costs and increase profitability.

Stratergy used to reduce inventory; results in lower expenses

like warehousing, storage etc.

The term is sometimes used synonymously with

Just-In-Time inventory.

Popularly known as Just-in-Time Inventory

Levels of inventory almost Zero

Increase cash flow with low storage and

warehousing costs

Increase cash flow by raising speed and number

of inventory turns (rate of replenishment of total

stock per year)

Lean manufactures like Dell and Toyota have little inventory in the factory itself-approaching the ideal zero

In Supply-chain industry

Advantages Disadvantages

Lower costs of storage

and warehousing

Maximise cash flows

by reducing inventory

costs

Increase profitability

due to reduced costs

Increase cost of

transportation for bringing

stock again and again

Inventory carrying burden

lies with suppliers

No inventory for

emergencies

Zero Based Budgeting vastly overestimates man’s ability to calculate

Forces managers to establish a preference for effectiveness, efficiency, or equity as they try to rank decision packages. This make the ranking process difficult.

Implementation takes great deal of time, which limits staff’s ability to perform.

Manipulation of ranking is frequent

Previous year budgets make a base for present

year’s estimation.

Zero based budgeting makes funds for current

year limited as each department is made to

reduce costs.

Zero based Inventory or Just-in-Time Inventory

◦ Have been made easy by technology (In theory only)

◦ That even after technological application companies

haven’t even scratched the surface of zero inventory.

(Inventory management experts agree)

◦ Companies must change their manufacturing and

handling process to successfully apply this strategy, and

invest in new softwares to make real progress.

Zero based Inventory throw open suppliers and customers to supply shocks (Low or excess supply)

Very low stock levels means arrival of stock several times during the period (even Toyota uses two suppliers for same assembly lines)

Each Business depends upon each other, so if there is any problem with one all suffers

CONCLUSION

◦These theories are for practical use only.

◦Difficult to apply in organisation◦Many changes have to be made to

accommodate them◦Even after changes; no assurance of

profitability◦Break in supply in raw material leads

to less production◦Consumer satisfaction is not achieved