Question

An approach to budgeting that requires the very existence of each program and the amount of resources requested to be allocated to that program to be justified each year is called:

1. Incremental budgeting.
2. Zero-based budgeting.
3. Performance budgeting
4. Planning-programming-budgeting.

Answer 1

Zero-based budgeting is the method that requires justifying each program's existence and resource allocation every year. The correct option is 2.

Step-by-step explanation:

The approach to budgeting that requires justification for every program and the resources it uses anew each year is called zero-based budgeting (ZBB). Unlike incremental budgeting, which adjusts previous years’ budgets with certain increments, ZBB starts from a “zero base” and every new budget cycle is an opportunity to reevaluate and justify each expenditure. This method aligns more closely with strategic business goals and can help in identifying wasteful expenditures, leading to more efficient resource allocation.

Why is budgeting difficult? Many people struggle with budgeting because it involves making tough choices about what expenses to prioritize. Budget constraints also require a fundamental understanding of income versus expenditures, and not sticking to a budget may result in financial shortfalls. Therefore, a system like ZBB can aid in focusing financial decisions on critical needs and organizational goals.

The main purpose of a budget is to assist in decision-making and to ensure that there is enough income to cover all planned expenses. Budgeting involves applying basic mathematical principles to understand income, expenses, and constraints. The use of Mathematics in budgeting is essential, and budget constraints can be understood as the difference between income and allowable expenses within a certain period.