What is the difference between conventional Budgeting and Zero-based Budgeting?
Cost cutting the business showcases the action taken on the unexpected or waste expenses that will help in the growth of the business. There are many measures taken by the company to cater for the needs and requirements of the cost such as using the old conventional techniques or using zero-based budgeting in business. In this blog, we will discuss the major difference between conventional budgeting and zero-based budgeting.
What is Conventional Budgeting?
Conventional budgeting is the process of planning, executing and budgeting in which the previous year’s budget is taken as a base to prepare a budget in the organisation. This form of budgeting was used by many organizations but wasn’t changed at the time.
What is Zero Based Budgeting?
Zero-based Budgeting is the new form of cost-budgeting system that cuts unnecessary costs in the business and formulates new ways of cash flow in the business. In this technique, each time a new budget is created, the activities are re-evaluated and start from scratch.
Difference between Conventional Budgeting and Zero-based Budgeting
Justifying the Cost
In Conventional budgeting, the company has to justify what to remove whereas in Zero-based budgeting, the company has to justify what to keep. In conventional budgeting, the company has to give valid reasons why they are cutting expenses such as firing an employee and cutting the cost of tea and beverages is valid whereas in zero-based, the company has to give valid reasons for extra expenses.
Usage of Cost
In conventional budgeting, the company focuses on cost-cutting whereas in Zero-based budgeting, the company focuses on cost-incurring. It can be different in both of the Budgeting. In conventional budgeting, the company focuses on unnecessarily cutting costs whereas in Zero-based, the company is focusing on investment in the right cost.
Techniques of Cost
In conventional budgeting, the company focuses on randomly cutting cost such as firing an employee, cutting the cost of expenses, not giving enough fund to administration, etc whereas in Zero-based budgeting, the company focus on planned techniques such as finalising the budgeting of expenses, administration, etc in advance and then act accordingly.
The base of Cost requirement
In conventional budgeting, the company makes the budget by analysing the previous year’s cost and takes it as a base for the new year’s cost whereas in zero-budgeting, the company basically focuses on the objective of the cost and then plans accordingly to the expense.
Objective-based Cost
In conventional budgeting, the company doesn’t have any objective about where to spend the money whereas, in zero-based budgeting, the company focuses on achieving and explaining the objective of money spent on expenses for employees. Also, in zero-based budgeting, the company identifies the objective then makes an investment and then resources the planning.
Cost on Items
In conventional budgeting, the company works on spending costs on specific items whereas in zero-budgeting, the company focuses on all the items of the company (holistically cost on all items) and then spends the cost on it.
Service Quality in Business
In conventional budgeting, if the company cuts the cost then it affects the service quality and can also lead to low-cost servicing whereas in zero-based budgeting, the company focuses on giving the best quality to the customers and focuses on spending the cost accordingly.
