HTM chapter 9 ZBB
base budget
defined as the expenditure level necessary to maintain last year's service level at next year's prices
allocation of resources
the ranking list results in a priority order for the what in ZBB
fixed costs
these costs do not vary with volume
reduced-level budget
this defines a percentage that the budget must be reduced
program planning budgeting system
this is an approach to developing a program budget
budget time horizon
this is the immediate future, which can be predicted with a reasonable degree of certainty on the basis of past business decisions and commitments (12 months)
business planning horizon
this is the period over which forecasts can be made with a reasonable degree of confidence (3 to 5 years)
strategic planning horizon
this is the period that extends far into the future and it focuses on the long-term aspirations of the sport organization and management
A budget
this quantifies planned revenues and expenses for a period of time
Capital expenditure budgets
a forecast of the expenses and income related to a capital investment
either no control or only very limited control
a forecast relates to events in the environment, relevant to the implementation of the plan, over which the business has what?
based on projected changes in operations and conditions
an incremental budget is based on what?
decision unit
an individual or unit where budget decisions are made; responsible for creating decision packages in zero-based budgeting
decision packages
are discrete additions to the reduced-level budget, ranked in priority order, to maintain existing programs, serve increased workloads, or add new programs
variable costs
costs that changes with volume
yes
is their staff involvement in incremental budgeting?
no
is top down fashion accurate or effective
its is a transitional type of budget between the line-item budget and the performance budget
program budgeting is what type of budget between what two things?
output budgeting
program planning budgeting systems is associated with what?
planned changes to assets, liabilities, and cash flows
Budgets can also include planned what?
higher then zero
MZBB starts at a base that is where?
forecasting process
Planning helps to provide information about the environment and what other process?
agree to the priority and ranking of their departments and activities.
ZBB requires all mangers involved in the budget process to what?
"zero base"
ZBB requires building a budget from a what?
it must be sustainable
a budget must be what?
budget
a financial plan that sets out a business's financial targets, expressed in monetary terms
line-item budgeting
a technique in which line items (also known as objects of expenditure) are the main focus of analysis, authorization, and control.
program budget
budget where expenditures are based primarily on programs of work and secondarily on the character and object of work
modified zero-based budgeting
budgeting concept that starts at a base higher then zero and matches spending levels with service to be performed
output budgeting
budgeting in which specific goals and objectives form the framework for a strategic process
its scarce resources purposefully
by connecting the budget to a plan it enables an organization to allocate what?
mixed costs
contain both fixed and variable costs
periodic expense
expenses for which money is set aside each month in order to have enough money when the expense occurs
step costs
expenses that are constant within a range of use but differ between ranges of use
expense budget
for each unit lists its primary activities and allocates a dollar amount to each
cash budget
forecasts how much cash the organization will have on hand and how much it will need to meet expenses
one time events
forecasts may also predict what? (e.g. outcome of free agency or the performance of a new recruit)
no
if a budget is not connected to a plan, is it a true budget?
the most important ones
in ZBB what items are funded first ?
ranked
in an organization each department and its related activities are what?
no
in incremental budgeting does anything ever get cut?
past sales histories and various factors that influence sales
in order to estimate sales a prudent manager will look at what?
top down management style
incremental budgeting is usually associated with what kind of management style?
they spend up to the budget because they do not want a surplus and lose budgeting room for next fiscal year
incremental budgeting make managers do what because they are afraid of what occruing?
budget time horizon, business planning horizon, strategic planning horizon.
individuals involve in budgeting should consider what three distinct time periods?
Zero-based budgeting (ZBB)
is a budgeting approach and a financial management strategy intended to help decision makers achieve more cost-effective delivery of goods and services
revenues budgets
is a forecast of revenues based on projections of the organization's sales
incremental budget
is a form of line-item budgeting in which next year's budget is arrived at by either decreasing or increasing last year's budget for each line item by the same percentage
forecast
is a prediction of future events and their quantification for the purpose of budgeting
Planning
is the establishment of objectives and the formulation, evaluation, and selection of the policies, strategies, tactics, and actions required to achieve those objectives
management planning and PPBS
the development of goals and objectives for an organization or program is fundamental to what?
external, internal, or personal
the environment considered in forecasting may be what?
with approaches to determining what the future holds and with the proper presentation and use of forecasts
the field of forecasting is concerned with what?
gaining buy-in from the administration and department heads
the first step toward sustainability is gaining what from who?
changing circumstances
the incremental budget approach is not recommended because it fails to take what into account?
increases paperowkr and requires time to prepare, managers tend to inflate the benefits of activities they want funded, and the eventual outcome may not differ much from what would occur with an in incremental budget
what are disadvantages of ZBB?
provides significant accountability to the administrators, coaches, and staff who created the criteria conflicts should be lessened
what are the advantages of ZBB?
use cost identification and behavior techniques(enhances the budgeting approach) begins with a floor of expenses includes decision or add packages requires managers to reduce their budgets by a predetermined percentage puts existing programs in competition with new ones
what are the chracteristics of MZBB?
1. each budget period starts fresh 2. budgets are zero unless managers make the case for resources. The relevant manager must justify the whole of the budget allocation 3. every activity is questioned as if it were new, before any resources are allocated to it 4. each plan of action hast to be justified in terms of total expected cost and benefit, with no reference to past activities
what are the four requirements of ZBB
1. Forecasting relies on past relationships and making predictions from historical information 2. Consider developing several forecasts under different potential scenarios with a probability assigned to each one 3. longer planning periods tend to produce less accurate forecasts. Use shorter planning periods 4. Forecasts of large interrelated items are more accurate than forecasts of specific itemized amount
what are the guidelines for forecasting (4 parts) ?
1. Identify expenses 2. Allocate fixed and mixed expenses 3. circle back to identify any fixed expenses that occur 4. average the mixed expenses to determine the average 6 to 9 months 5 address and prioritize the variable expense 6. expense must be offset against anticipated revenues
what are the steps in MZBB
funds are allocated to departments or organizational units, and the managers of these units then allocate these funds to activities they see fit. only the incremental change in the budget requested is reviewed
what are the two important characteristics of incremental budgeting?
1. input from the entire organization 2. a means of sharing the budget across the organization
what are the two successful keys to budgeting?
supplies, personnel, travel, and operational expenditures
what are typical line items?
1. link budgeting to strategic planning 2. make budgeting procedures part of strategic planning 3. during the budgeting process, spend less time collecting and gathering data and more time generation information for strategic decision making 4. get agreement on summary budgets before you spend time preparing detail budgets 5. automate the collection and consolidation of budgets across the organization 6. set up budget so it will accept changes quickly and easily 7. design a budget that give lower-level managers some form of fiscal control over their own areas of responsibility 8. leverage financial systems by establishing a data warehouse that can be used for both reporting and budgeting
what best practices can transform budgeting into a value-added activity?
input only from the head office or higher administration
what does it mean if a budget is in a top-down fashion
a forecast simply is a prediction, and a plan defines what we are going to do.
what is the difference between a forecast and a plan
forecasting is concerned with what the future will look like, and budgeting is concerned with what it should like.
what is the difference between forecasting and budgeting?
planning
what is the essence of program budgeting?
to link planning with budgeting systematically in the service of clearly identified goals
what is the goal program planning budgeting system?
to highlight the units of activity that line items support
what is the purpose of program budgeting?
Planning
what is usually the first step, prior to forecasting and budgeting
service
what kind of companies use modified zero-based budgeting?
1. define financial objectives, which determine the direction and thrust of each department's operations 2. establish goals for achieving these objectives within the budgeted timeframe 3. identify the activities and quantify the elements needed to achieve established goals 4. describe the factors and situations that may affect planned activities
what should the budget formulation process do?
because no one sport program or department is increased or cut at a different level than the others
why does incremental budgeting often have the name of the fair share approach?
prioritization
zero based budgeting forces what?