Zero-based budgeting (ZBB) offers a range of advantages and disadvantages. One significant advantage is its ability to promote cost consciousness and efficiency.
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By requiring a thorough justification for each budget item, ZBB compels organizations to scrutinize their expenses and identify unnecessary or ineffective expenditures. Additionally, ZBB encourages strategic planning and prioritization, as resources are allocated based on their value and importance. This ensures that funds are directed towards high-priority areas. Another advantage is its flexibility in adapting to changing circumstances, as budgets are not based on previous allocations but start from scratch.
However, ZBB also presents certain drawbacks. Its implementation can be time-consuming and resource-intensive due to the detailed analysis and documentation required. Moreover, there is a risk of short-term thinking, potentially overlooking long-term investments that may yield substantial benefits. Lastly, ZBB may encounter challenges in complex organizations with numerous budgetary items, as the process may become overly complex.