Zero based budgeting method enables the weaknesses of the traditional approach to be overcome by implementing bottom-up logic that

builds concrete, immediate, and lasting results. The zero-based costing method evolved from the zero-based budgeting theory and is practical and useful. Its ultimate goal is to implement cost-saving opportunities that already exist within the company. In addition, the zero-based approach provides a breaking point toward the reengineering approach, the goal of which is to simplify interdepartmental and across the company processes. The zero-based approach aims to minimize inefficiencies throughout every cost center. It detects vertical inefficiencies inside a cost center that would be neglected by a processreengineering approach. In particular, cost reduction is achieved by forcing managers to seek alternative ways of carrying out their responsibilities. The zero-based approach requires the organizations involvement at all levels: Top executives are committed to coordination and sponsorship activities, and mid-level managers focus on operative tasks.

Advantages:
Rational budget formation takes place in comparison with traditional budget. Surplus expenditures get reduced as a result of allocation of resources from lower priority area to higher priority area. It also enables to top management to easily evaluate the department heads in terms of their performance. Better cost control mechanism among the various departments as a result of which increase in the efficiency of the whole organization is achieved. It increases the overall communication & coordination within the organization and thus creates a better environment within the organization.

Disadvantages:
Extra paperwork and personnel is required which in turn increases the cost for setting up zero based budgeting system. Zero based budgeting is also more time consuming than traditional budgeting system and therefore it is resisted by various department heads. Deciding the departmental objectives within the framework of organization objectives necessitates top down communication of these objectives with lots of clarity which is often not done in case of zero based budgeting.