A local government council is implementing Zero-Based Budgeting (ZBB) for its community services department. Which TWO of the following are essential steps in the ZBB process?

Answer options:

Taking the previous year's budget and adding an inflation percentage.

Defining decision packages for all activities.

Ranking decision packages based on cost-benefit analysis.

Flexing the budget to match actual service levels achieved.

How to approach this question

Identify the core mechanics of ZBB: starting from zero, justifying everything via decision packages, and ranking them.

Full Answer

Zero-Based Budgeting (ZBB) requires all expenses to be justified for each new period. The process involves identifying all activities as 'decision packages', evaluating the cost and benefit of each, and then ranking them in order of priority to allocate funds.

Common mistakes

Selecting incremental budgeting steps (adding inflation) out of habit.

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