Zero-based budget

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Advanced management accounting

Introduction

This article will describe the Zero-based budget, then looking for non-profit organization to design unit and design packages .it to make a rank of package accounting to budget, the organization in ZZB of advantages and problems.

Zero-based budget

This method mean that mainly sued in non-profit organization. The approach require that all activities are justified and prioritized before decisions are take relation to the amount of resources allocated to each activity. It method is work from project expenditure for existing programmers. It should started from zero-base, within each year’s budget being complied and if programmers were being launched for the first time. (Colin Drury, 2008)

What the organization want to choose?

I choose of organization is children’s Thalassemia. The object of organization is provide to improve the quality of life of children and their families with thalassemia and to ultimately radiate thalassemia major in Hong Kong. Children’s Thalassemia to provide services include arouse awareness and acceptance of people with Thalassemia major in our society, furnish new medical equipment to improve the treatment for patients and support the patients in buying iron-removal equipment and accessories.( children’s Thalassemia website)

The decision unit and decision package

Cord Blood Bank Department

Cord Blood Bank Department also has three possible packages of activity. The package1 include Cord Blood department basic requirement and equipment. Packages 2 and 3 are not dependent on each other.

Package 1(cost $6,000,000): to provide storage of Cord Blood services and equipment

Package 2(cost $2,000,000): research new technology to increase the cord blood storage time more than 30 years.

Package 3: (cost $108,000): In television and Intranet do propaganda activities, strengthen the public the importance of umbilical cord blood bank.

The estimated of benefit for packages 2 and 3are $2,04000and $122,000 respectively.

Promotion Department

Promotion Department also has three possible packages of activity. The package1 include: buy mobile publicity van for advertising activities and promotion basis requirement. Packages 2 and 3 are not rely that side.

Package 1(cost $380,000): Buy mobile publicity van, as a basic requirement of district propaganda.

Package 2(cost $40,000): design Flyers posted on mobile publicity van, it can improve the effect of propaganda.

Package 3: (cost $15,000): Printing and distributing extensively about the Mediterranean anemia propaganda, attract and the public attention to the disease.

The estimated of benefit for packages 2 and 3 are $69,000 and $28,000 respectively.

Gynecology and Gene detection Department

Gynecology and Gene detection Department also has three possible packages of activity. The package1 include joint inspection and antenatal examination service need equipment. Packages 2 and 3 are not rely that side.

Package 1(cost $2,800,000): to provide joint inspection and antenatal examination service basic need equipment. Because if a couple only one party is poor gene carriers, each pregnancy, their children have a 50% chance to become a lean gene by genetic carrier.

Package 2(cost $1,450,000): Bought advanced equipment inspection, enhance the accuracy in testing the next generation of influenza a heavy anemia.

Package 3: (cost $50,000): Tutoring services, anemia genes have been found in antenatal examination, and emotional problems. It provide patients and their family emotional and psychological support and counselling.

The estimated of benefit for packages 2 and 3are $1,470,000 and $54,000respectively.

The total budget funds available to be allocated between the three departments is $12,800,000 .The three departments of packages total amount is $ 12,843,000. The activity of packages total amount is over the total budget funds available.

Accounting to Package 1 is essential to the organization in each case and must be carry out in there. The other packages are rank on the basis of the net benefit which the organization provide.

cost

Benefit

Net benefit

Ranking

($`000)

($`000)

($`000)

Cord Blood Bank Department :

Package 1

6000

=1

Package 2

2000

2040

40

2

Package 3

108

122

14

5

Promotion Department

Package 1

380

=1

Package 2

40

69

29

3

Package 3

15

28

13

6

Gynecology and Gene detection Department

Package 1

2800

=1

Package 2

1450

1470

20

4

Package 3

50

54

4

7

This show that the budget allocation will be as follows:

$`000

Cord Blood Bank package 1

6000

Promotion package 1

380

Gynecology and Gene detection package 1

2800

Cord Blood Bank package 2

2000

Promotion package 2

40

Gynecology and Gene detection package 2

1450

Cord Blood Bank package 3

108

Promotion package 3

15

12793

This leaves $50,000 allocated. The Gynecology and Gene detection Department may be able to Tutoring services part of one remaining package.

Due to the limited of the budget (12,000,000). So ,accounting to Package 1 is essential to the organization in each case and must be carry out in there packages 2and 3 are rank on the basis of the net benefit which the organization provide.. Also, this package is consider with the organization of objective. However, About the Gynecology and Gene detection package 3, the net benefit low than other packages .finally, for the limited of budgeting were forced to give up this package only.

Advantages of Zero-based budget at organization

First, Zero based budget helps in identifying areas of wasteful expenditure, and if desired, it can also be used for suggesting alternative courses of action. Because the activities started from zero-base, within each year’s budget being compiled.

Second, Efficient allocation of resources, as it is based on needs and benefits rather than history. Because of the limited resources (budget), so will according to the package for benefit of selections.

Third, for the decision-making to provide greater initiative and responsibility to improve of staff motivation. Because of the staff understand that objective of organization, than the purpose of the design package is in whether consider the concept of activities and the cost is able to support.

Fourthly, Identifies opportunities for outsourcing. For example, the promotion department may outsourcing the design or printing of quality poster.

Disadvantages of Zero-based budget

First, may stress short not long term. Because this Zero-based budgeting is started from zero-base, within each year’s budget at being.it use only one year.

Second, it is very time consuming. Due to needs to be work done each year’s being, but every year the data has change and the each decision unit and package may to do again for each year.

Third, it may necessary to train managers. Because of the ZBB levels or they should not be successfully implemented clearly understood by managers. Difficult to manage and communicate the budget, because managers are involved in the process.

Zero-based budget problems at chosen organization

First, what are the objectives of the activity?

The Objective for Thalassemia, by educating the public, let them have a basic understanding about Thalassemia in order to prevent it from occurring and Enhancing both emotional and psychological support and counseling for patients and their families

Second, to what extent are these objectives achieved?

As long as the activity is consistent with the purpose of the organization, to help people know more about the knowledge of the Mediterranean anemia and help patients. And with the lowest cost to help more patients and prevent more critically ill patients.

Third, by what mechanism is the achievement measured?

Several measures will be used to find out if objectives are achieved.

For example, increase of couples gene and antenatal examination, or cost efficiency, use of low cost with this can improve the storage life of cold blood bank, etc.

Fourthly, is there an alternative way of meeting the objectives?

To change the old of propaganda way, in addition to traditional way of publicity, due to the booming era, information can be the intranet on additional care introduction about the Mediterranean anemia or design the mobile programs (APP) introduced to people around in the world.

Fifthly, if the activity was discontinued?

For closing departments would mean may not continuing to operate the organization. For example of follow,

If the close the Cord Blood Bank Department, the organization may not provide the service to storage Cord Blood, when people need Cord Blood to transplant, it is a place to find the right genes provide less.

If close the Promotion Department, this should be in violation of the organization objective. Because the object of organization is educating the public, let them have a basic understanding about Thalassemia and in order to prevent it from occurring.

If close the Gynecology and Gene detection Department, it will breach of the objective .it because the object of organization is to avoid the emergence of thalassemia.

Conclusion

Zero-based budget for non-profit organization, in addition to need to do once a year is spent, about the problems such as Zero-based budget in non-profit organization more efficient to control the cost ,and with interest as the cause of the decision.

References

Drury, C., 7th 2008.Management and cost accounting,South-Western: UK.

Atrill, P. & Mclaney, E., 7th 2012.Management Accounting for Decision Makers,Pearson Education Limited : England.

Children’s Thalassemia Foundation,. Available at: http://www.thalassaemia.org.hk/en/thala08.php

Parents will Parenting Network. Available at: http://www.fumuhui.com/news/96286.shtml

The Manage mentor. Available at: <http://www.themanagementor.com/enlightenmentorareas/finance/cfa/ZeroBasedBudge.htm>

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