ZBB vs ABB
ZBB is Zero Based Budgeting and ABB is Activity Based Budgeting. Both are different approaches to budgeting and both are applicable to costs that contain a discretionary element.
The Zero Based Budgeting is a method where all expenses have to be justified for every new period. The ZBB commences from a Zero base. In Zero Based Budgeting, all functions in an organisation are analysed for its needs and costs. After the analysis, the budget would be centred on the needs for the upcoming period. While doing this, it does not take into account whether the budget is higher or lower than the previous one.
ZBB can also be termed as a re-evaluation of the program and expenditures of an organisation. When approaching the budget from Zero, the managers of an organisation have to take into account two types of alternatives: 1. various ways of carrying out the same activities and (2) various levels of effort in carrying out the activities.
ZBB is known to be more time- consuming than the other traditional budgeting.
The Activity Based Budgeting helps in developing accurate budgets for organisations. The Activity Based Budgeting is a budgeting method where all the activities that invite cost in all functional areas in an organisation are recorded and the relationship between them is analysed.
The Activity Based Budgeting aligns all activities with the objectives. The Activity Based Budgeting also streamlines the costs and helps in improving business practices. The ABB helps in effective analysiss of the profit potential of an organisation’s services and its products. The Activity Based Budgeting also helps in cost effectiveness by comparing the various activities of an organisation and by consolidating certain functions.
Summary
1. The Zero Based Budgeting is a method where all expenses have to be justified for every new period.
2. The Activity Based Budgeting is a budgeting method where all the activities that invite cost in all functional areas in an organisation are recorded and the relationship between them is analysed.
3. In Zero Based Budgeting, all functions in an organisation are analysed for its needs and costs.
4. ZBB can also be termed as a re-evaluation of the program and expenditures of an organisation.
5. The Activity Based Budgeting aligns all activities with the objectives.
6. The ABB helps in effective analysis of the profit potential of an organisation’s services and its products.