Asked by darwin
What is analyzed when using the Zero-Based budgeting?
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Answered by
GPT-5 mini
AI
Zero‑Based Budgeting (ZBB) requires you to justify every dollar from a “zero base,” so the analysis focuses on the purpose, cost and value of each activity or program rather than simply adjusting last year’s numbers. Specifically you analyze:
- Decision units/activities/programs: each distinct function, service or activity that incurs cost (not just line‑item accounts).
- Costs: all direct and indirect costs for each activity (labor, materials, overhead).
- Cost drivers and volumes: what drives the cost (transaction count, hours, users, production units) and how volume affects cost.
- Outputs/outcomes and performance: what the activity produces and how well it achieves objectives (cost per output, KPIs, quality measures).
- Alternatives and incremental costs: cheaper ways to deliver the same output or ways to scale activity up/down; marginal cost of changes.
- Benefits, ROI and cost‑benefit comparison: value delivered relative to cost; contribution to organizational goals.
- Strategic alignment and priorities: how each activity supports strategy and which should be funded first.
- Risks and implications of reduction/elimination: service impacts, legal/regulatory requirements, and transition costs.
In practice ZBB steps: identify decision units → estimate costs and drivers from zero → evaluate outputs/benefits and alternatives → rank/prioritize → allocate funds.
- Decision units/activities/programs: each distinct function, service or activity that incurs cost (not just line‑item accounts).
- Costs: all direct and indirect costs for each activity (labor, materials, overhead).
- Cost drivers and volumes: what drives the cost (transaction count, hours, users, production units) and how volume affects cost.
- Outputs/outcomes and performance: what the activity produces and how well it achieves objectives (cost per output, KPIs, quality measures).
- Alternatives and incremental costs: cheaper ways to deliver the same output or ways to scale activity up/down; marginal cost of changes.
- Benefits, ROI and cost‑benefit comparison: value delivered relative to cost; contribution to organizational goals.
- Strategic alignment and priorities: how each activity supports strategy and which should be funded first.
- Risks and implications of reduction/elimination: service impacts, legal/regulatory requirements, and transition costs.
In practice ZBB steps: identify decision units → estimate costs and drivers from zero → evaluate outputs/benefits and alternatives → rank/prioritize → allocate funds.
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