Zero-Based Budgeting
Zero-based budgeting is a technique where a company’s budget is determined based on a forecast of expenses. However, unlike most other budget processes, previous year data is not used as a reference for future needs. The budget is to be derived only from what costs should be. Batarla (2005) notes that this “technique will help you better develop a complete picture of what the program actually needs to cost and not just what it has been costing” (para. 5).
Performance-Based Budgeting
Performance-based budgeting is concerned not only with the development of the actual budget, but also attempting to find the most effective ways to use money to get a desired outcome. Batarla (2005) states that this form of budgeting requires that “you throw out the notion of accomplishing programs (i.e. police department) and focus on how you can accomplish the outcomes (i.e. reducing crime)” (para. 7). Performance-based budgeting is a technique to help find creative ideas to solve problems by focusing on the expected outcome.
Batarla, R. (2005, September). Playbook: Add value to your budgeting process. Parks & Recreation, 40(9), 18.
While a regular buegdt is incredibly useful, it doesn’t involve timing, which is essential. For instance, according to your overall budget, you may have $20,000 left to spend on a particular project, and 4 months left to spend it in, but that’s all it’s going to tell you. What if a separate project was recently funded and now the cash reserves are too low to fund this one at this particular point. Then, if a liability comes due, there won’t be enough money left to cover it, and the company ends up in hot water. So a cash flow budget takes timing and cash reserves into account. It plots when and how much money regularly comes into and out of the cash accounts so that the company knows when it can make large expenditures without running the risk of overdrawing. Hope that helps.