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Essay / Zero-Based Budgeting - 712
Unlike traditional budgets, zero-based budgeting requires justification for each expense described in the budget. Zero-based budget planning starts from the zero baseline and each item of the budget is analyzed. Managers or department heads, if it is a government entity, will justify the reasoning behind their budget request. Most budgets are progressive, which automatically increases the previous year's budget. Depending on the budget review, a department may or may not receive a budget increase. This type of budget planning has both advantages and disadvantages, but in the long run, if planned and carried out correctly, it will prove to be a more effective way of preparing a budget. Companies that adopted the zero-based budgeting approach generally reported improvement and either saved money, improved services, or both (LaFaive, 2003). Zero-based budgeting has many benefits. An important advantage of zero-based budgeting is that it will lead a manager or department head to better understand the financial needs of their department. This will eliminate a...