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Handbook of Budgeting, 6th Edition by William R. Lalli

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CHAPTER THIRTY

Zero-Based Budgeting

Peter A. Pyhrr

Magnetic Ticket & Label Corp.

INTRODUCTION

Zero-based budgeting (ZBB) is nothing conceptually new, is not a budgeting process, and is not “reinventing the wheel.” It is, however, a management approach, and it can be a key decision-making tool for the chief executive officer (CEO).

The term “zero-based budgeting” was launched into vogue by former President Jimmy Carter, who installed the process while governor of Georgia and who attempted to install it throughout the federal government. However, the process was developed in industry, at Texas Instruments, and is currently being used by industrial companies. There are several key characteristics about the process in its application to date:

  • The decision to implement ZBB is usually made by the CEO or other key operating managers, not by the vice president of finance or the controller.
  • It is being used by companies noted for their good management. (“Good management is always looking for better decision-making tools.”)
  • The process is difficult, requires a great deal of effort to implement effectively, and may be perceived as a threat by many managers. It has failed in a few organizations and is no panacea, yet most companies have found that the benefits far outweigh the costs of implementation.

Those organizations that have had the most success with ZBB have learned that it is not a budgeting process but a management approach.

The chief beneficiaries of the zero-based management ...

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