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ACCA Strategic Professional · Advanced Performance Management · Performance optimisation in specific contexts

A regional council uses incremental budgeting for its libraries. The finance director proposes a funding model where every service must justify its whole budget from a zero base, ranking activities by their contribution to council objectives. What is the main advantage of this approach for a not-for-profit body?

Zero-based budgeting challenges existing activities and ties resource allocation to objectives instead of simply adding to last year's spend. Its drawbacks are that it takes more time and effort than incremental budgeting, and it does not remove the need for non-financial measures.

  1. AIt reduces the time managers spend on budget preparation
  2. BIt guarantees that the budget will not exceed funds available
  3. CIt challenges existing activities and links resources to objectives rather than past spendingCorrect
  4. DIt removes the need for non-financial measures

Explanation

Zero-based budgeting forces each activity to be justified and ranked, so resources follow objectives and inefficient legacy spending is challenged. It is more time-consuming than incremental budgeting, so the time option is wrong. It does not guarantee affordability and does not replace non-financial measures.

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