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Windsor Memorial Hospital: Zero-Based Budgeting

Read the Report of the Executive Committee, April 2008, for the Windsor Memorial Hospital attached.
1. What is a zero-based budget?
2. When should zero-based budgeting be used?
3. What are the steps to implement zero-based budgets?
4. Are there any benefits to implementing zero-based budgets at Windsor Memorial hospital? If so, what are they?


Solution Preview

It is a method of budgeting, where all expenses must be justified for each new period. It starts from a zero base and every function in an organization is analyzed for its needs and costs. After that, budgets are prepared for required things in upcoming period. In this, budgets may be higher and lower than the previous budgets (Holl & Böhm, 2005). It means zero based budgets are fresh and not based on historical data. These budgets are designed to prevent budgets creeping up each year with inflation. It allows top level strategic goals to be implemented into budgeting process by binding them to specific functional areas of organization. In that, costs can be grouped, and then measured with previous results and current expectations.

Use of zero- based budget
Zero based budgeting should be used by companies to cut cost and increase efficiency of the operations. It is an ideal way to allocate a company's scarce financial resources. So, companies should use this method of budgeting for appropriate allocation of scare and limited resources of the organization for important activities. With the help of this, managers can prepare budget for the cost of running their operations at the lowest possible level (LaFaive, 2003). They can calculate the costs and benefits for making a particular decision that would lead to an incremental increase from the level.

Along with this, zero based budgeting provides facility to break down budgets into different activities and decision packages that help to managers ...

Solution Summary

The solution discusses zero-based budgeting at the Windsor Memorial Hospital.