Final answer:
Conventional budgeting offers predictability and stability but may allow inefficiencies, while zero-based budgeting promotes efficiency and accountability but is time-consuming and resource-intensive.
Step-by-step explanation:
When comparing conventional budgeting with zero-based budgeting, both have their advantages and disadvantages. Conventional budgeting, often called incremental budgeting, is a method where the previous year’s budget is taken as a base, and current year’s budget is created by making incremental changes to it. This approach allows for consistency and predictability, enabling organizations to operate with stability. However, it may perpetuate inefficiencies as it does not necessarily challenge existing assumptions.
In contrast, zero-based budgeting (ZBB) starts from a "zero base" and every function within an organization is analyzed for its needs and costs. Every expense must be justified in each new period, leading to efficient allocation of resources as it focuses on cost-benefit analysis and emphasizes accountability and cost consciousness among managers. The main drawbacks of ZBB are that it can be time-consuming and requires significant training for staff to implement effectively, which can be a challenge for large organizations.
Both budgeting methodologies serve the purpose of ensuring that resources are effectively allocated in alignment with the organization’s goals and strategies. Yet, the decision to employ either depends on the organization’s specific needs, the size of its operations, and the dynamic nature of the industry in which it operates.