Advantages And Disadvantages Of Alternative Budgeting

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The alternative budget systems grew as a result of the need to provide solutions to the perceived problem of traditional budgeting. Apart from traditional budgeting systems such as incremental and line-items budgets, there are alternative budgetary systems which have developed over the years. They are Beyond Budgets (BB), Zero-Based Budget (ZBB) and Rolling Budget (RB). There is also cash budget which is a financial plan of the cash inflows and outflows for a specific period. However, I shall focus on three (3) alternative budgeting systems for Emilia namely ZBB, RB and ABB. • Zero-Based Budget (ZBB): ZBB is an improved solution to historical based budgeting system. ZBB does not start from the earlier year’s budget level but starts from…show more content…
It decreases the elements of uncertainty in the financial plan that might be caused by inflation. ii. It produces the utmost realistic budget figure for an organization. The disadvantages of this type of budgeting system are: i. It consumes much time and manpower because of the regular review of the budget. • Activity-Based Budget (ABB): In activity based budget (ABB), the emphasis is based on the activities. That is to say ABB focuses on creating the budget based on activities rather than units. For instance, departments in Emilia that generates more activities will be assigned more financial resources in the budget. ABB utilizes overhead costs from activity based costing method. ABB reduces bureaucracy and time needed in traditional budgeting and it is computer-based and can usually be updated. According to Kaplan Financial Knowledge Bank (2012), the advantages of ABB are: i. It draws attention to the costs of overhead activities. ii. It acknowledges that it is activities which drive costs. Thus, once Emilia can control the cost drivers, then costs should be better managed. iii. It can provides suitable information in Total Quality Management (TQM) such that it relates the cost of an activity to the level of services
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