Assignment 2: Continental Hotel Budget Planner

BMIH5007 - Financial Management for the Hotel Industry

[DATE]
UNIVERSITY OF WALES TRINITY SAINT DAVID
[Company address]

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Executive Summary
In this study, we looked at how zero-based budgeting works in practise. As a result of this
research, an organisation will have a better understanding of how to use zero-based
budgeting in financial accounting. In comparison to traditional budgeting, ZBB is more
efficient and effective, and it also overcomes some of the limitations of traditional
budgeting. ZBB, as opposed to conventional budgeting, considers all of an organization’s
costs, not only new ones. Despite its flaws, Continental Hotel will benefit from using ZBB in
their budgeting process.

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 Table of Contents
Executive Summary....................................................................................................................2

1. Introduction............................................................................................................................4

2. Zero-based Budgeting............................................................................................................4

2.1 Zero-based budgeting......................................................................................................4

2.2 Advantages of Zero-based budgeting over Traditional-Based Budgeting.......................6

2.3 How the Organisation Might introduce Zero-based Budgeting.......................................6

3. Conclusion..............................................................................................................................8

4. Budget Calculations................................................................................................................9

5. References............................................................................................................................10

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1. Introduction
Zero-based budgeting and its application in an organisation were the subject of the
research. ZBB (Zero-based Budgeting) has been defined in the paper, together with its
historical context and technological aspects. The phases of zero-based budgeting have been
explained in this section. Thus, the ZBB has been compared to Traditional Budgeting in
terms of its advantages in the financial accounting process of an organisation. On the
general and Continental Hotel level, ZBB installation has been explored.

2. Zero-based Budgeting
While working at Texas Instruments as an account manager in the early 1960s, Peter Pyhrr
came up with the concept of zero-based budgeting (Ibrahim, 2019). ZBB (zero-based
budgeting) differs from standard budgeting by starting at zero and justifying every single
expenditure. Zero-based budgeting, as opposed to incremental budgeting increases, starts
from beginning and examines the particular needs of the organisation. This enables a more
deliberate, top-down approach to project performance analysis (Petersen et al., 2022).

2.1 Zero-based budgeting

Each fiscal year begins with all expenses accounted for in zero-based budgeting. Zero-based
budgeting is a procedure in which every aspect of an organisation is analysed for its needs
and costs. In the end, it does not matter if the budgets are larger or smaller than they were
in the past; they are based on what is required for the following term. It is possible to
integrate high-level strategic objectives into the budgeting process by tying them to specific
business units where expenditures may be pooled and then compared to previous results
and current expectations (Beredugo, Azubike and Okon, 2019). This is made possible via
ZBB.

Over an extended period, managers or group leaders can carry out zero-based budgeting by
examining only a few functional areas at a time. Zero-based budgeting might save money by
avoiding substantial increases or decreases in the budget from the previous month. It is
quicker to use traditional cost-based budgeting than this strategy, but it requires more time.
Since customer service and R&D are more difficult to track, companies choose to focus on

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areas like direct income or production (Adah, 2016). In addition to corporations, individuals
and families may benefit from zero-based budgeting.

Zero-based budgeting may be used by an equipment maker, in which production expenses

are analysed more thoroughly. Coyte, Messner and Zhou (2020) have seen that there is a 5%
annual increase in the cost of things that are outsourced to another manufacturer. The
company’s employees may produce these components on-site. Having weighed the pros
and cons of in-house production, the firm has come to the conclusion that it can create the
parts for a cheaper price than the external source.

There are more options beyond merely raising spending. One is to figure out when and
where the firm can produce or acquire a component for its final goods. Departmental cost
factors could be difficult to identify using standard budgeting. The purpose of zero-based
budgeting is to discover and justify spending on a more granular level (Rasugu, 2019). On
the other side, zero-based budgeting involves a lot of work, so the potential savings need to
be weighed against the time and resources necessary to execute it.

Businesses may begin implementing ZBB in one of several ways, with the following five steps
serving as a good place to start.

Start: A new company should be started from scratch. The actuals from the
previous year should not be used to create a new yearly budget by
organisations (Chinniah, 2013).

Evaluate: Every facet of a company’s budget should be scrutinised. They should cut
back on or remove non-essential activities or services (Broughel, 2020).

Justify: Each and every one of the budget’s components has to be taken into
consideration. Organizations need to discover ways to save money while
still accomplishing their goals and objectives (Heinrich, Garton and Martin,
2016).

Streamline: What has to be done and how it needs to be done is the responsibility of
the organisation. Automating and standardising processes is a win-win
situation for everyone involved (Al-ddin and Ayedh, 2019).

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 Execute: Planning and execution should be approached from a holistic perspective
by organisations. Each person’s duties and how they integrate into the
larger picture must be made clear (Ekanem, 2014).

2.2 Advantages of Zero-based budgeting over Traditional-Based Budgeting

Companies use budgets to keep track of spending and identify ways to reduce costs and
enhance revenues. Past year’s expenditure plans are sometimes used as a basis for
budgeting. Whereas with traditional budgeting, new goals are incrementally achieved by
adjusting the preceding year’s budget by a certain percentage point. One percent to ten
percent are the most common percentages here. Budgets can go out of control or show
enormous increases or drops in costs depending on the overall market prediction and other
external events (de Campos, Rodrigues and Jorge, 2017). It is not a good idea to look at the
company’s prior year’s budget because of the significant changes that have taken place.
When it comes to a fresh budget, a zero-based budget is necessary. All of the company’s
costs and components are analysed one by one in a zero-based budget. It is known as the
“zero base” start. However, traditional budgeting only accounts for new expenses
(Rassadina, 2017).

When it comes to budgeting, zero-based budgeting is one of the most effective methods for
streamlining operations while cutting costs and enhancing budget flexibility. It is when
managers consider the financial impact of every dollar that the most profitable businesses
come to the forefront of their thoughts. As opposed to a budget that grows incrementally,
resources are not misallocated when budgeting on a zero-based basis (AHMODU, 2018).

Unlike zero-based budgeting, conventional budgeting argues for gradual climbs over
previous budgets, such as an 8% increase. Because of this, typical budgeting only considers
current expenditures, but zero-based budgeting demands an explanation of all prior
purchases, including recurring ones. The primary objective of zero-based budgeting is to put
the onus on managers to justify their expenditures and to create value for a company by
optimising costs rather than just revenue (Dali, 2021).

2.3 How the Organisation Might introduce Zero-based Budgeting

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While zero-based budgeting has numerous advantages, it also has certain drawbacks that
should be taken into account. The whole corporate strategy and aims of a corporation must
be taken into consideration when selecting whether or not to employ zero-based budgets.
The value of a firm and the culture it creates may be drastically altered by implementing a
zero-based budget (Ibrahim, 2019; Lorenz, 2015).

Changes in corporate culture can be brought about by a company’s strong desire to

maintain a dynamic work environment that is open to everyone while also cutting all the
expenses connected with it as part of the zero-based budgeting process, for example.
Increased customer turnover and a changed perception of the brand are both possible
outcomes of this change. In these instances, typical budgeting is inadequate since just half
of organisations can retain cost reductions for longer than a year or two (Al-attara,
Mashkourb and Hassanc, 2020).

It is important to weigh the pros and cons of zero-based budgeting before deciding whether
or not to utilise it.

Implementation of Zero-based Budgeting:

Consolidate financial reporting and analysis with ZBB

ZBB should not be seen as an alternative to existing budgeting and planning processes, but
rather as a mechanism to refocus investment on important goals every few years as an
auxiliary procedure (Kanungo, 2017).

Prioritise ZBB’s efforts to maximise its return on investment

ZBB initiatives frequently target difficult-to-quantify indirect costs, such as SG&A and other
types of overhead. As a result of this strategy, Continental Hotel may concentrate their
efforts on certain sections of the company while minimising disturbance to customer-facing
services. Continental Hotel can utilise ZBB just for new business initiatives and requests for
additional money, and can keep using conventional budgeting techniques for current
activities (Beredugo, Azubike and Okon, 2019).

An operational and financial system should be consolidated

ZBB’s success depends on a thorough understanding of the operational factors that

influence the company’s expenditures. An individual worker, a business trip, or a marketing

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campaign must have a degree of detail in terms of expenditures that can be linked back to
them (Haxholli, 2015).

The modelling process should be as straightforward as possible

There must be a direct correlation between activity levels and the resulting need for
resources and personnel (Vaughan, 2018). The managers of the Continental Hotel must
make cost-effective judgments when activity levels and service levels change.

Improvements in FP&A (financial reporting and analysis) can be made by employing ZBB
models

The ZBB model might be the first enterprise-wide model of causal relationships between the
activities of different business sectors if Continental Hotel adopts an incremental budget
planning approach based on the previous year’s actuals. In order to support the annual
budgeting process and rolling predictions, FP&A teams need change the model. By
repurposing models in this way, ZBB is no longer regarded as a stand-alone activity; rather,
it is regarded as the initial stage in the change of corporate planning and budgeting, which
might eventually lead to completely unified business planning (Coyte, Messner and Zhou,
2020).

3. Conclusion
In a nutshell, the paper covered a variety of components of zero-based budgeting, all of
which are essential for an organisation to understand in order to successfully implement
and use ZBB in its financial accounting. There is little doubt that ZBB is more efficient and
user-friendly than traditional budgeting, and it also addresses a number of the restrictions
that traditional budgeting imposes. The standard budgeting procedure just takes into
account new spending, but ZBB takes into account all of an organization’s budget’s
expenditures. In spite of ZBB’s flaws, Continental Hotel will gain by incorporating it into their
budgeting process.

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4. Budget Calculations

Continental Hotel Budget Planner

   
(in £) January February March April May June July August September October November December Total
   
Receipts:                          
Payment on business Accounts 6,000 6,000
Cash sales 91,800 72,800 91,800 46,800 48,800 55,800 63,300 73,700 80,800 55,800 57,700 57,600 7,96,700
Interest Received 2,549 4,417 6,918 8,034 9,136 10,679 12,514 14,687 17,091 18,873 20,778 1,25,675
   
Total Receipts 97,800 75,349 96,217 53,718 56,834 64,936 73,979 86,214 95,487 72,891 76,573 78,378 9,28,375
   
Payments:                          
Freehold  
Fixtures and fittings  
Property expenses 7,000 2,500 9,500
Laundry  
Energy costs 700 700 700 700 700 700 700 700 700 700 700 700 8,400
Payments to suppliers 4,900 5,150 4,900 8,600 5,150 5,600 4,900 5,850 4,900 5,600 5,150 5,600 66,300
Wages 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 72,000
Salaries  
Vehicles 450 415 450 415 450 415 415 415 450 415 415 4,415 9,120
Van  
Petrol and Diesel 500 500 500 500 500 500 500 500 500 500 500 500 6,000
Rates 300 300 300 300 300 300 300 300 300 300 300 300 3,600
Marketing  
Overdraft Interest  
   
Total Payments 12,850 13,065 12,850 16,515 20,100 13,515 12,815 13,765 15,350 13,515 13,065 17,515 1,74,920
   
Balance b/f 0 84,950 1,47,234 2,30,601 2,67,804 3,04,538 3,55,959 4,17,123 4,89,571 5,69,708 6,29,085 6,92,592 41,89,163
Net cashflow in month 84,950 62,284 83,367 37,203 36,734 51,421 61,164 72,449 80,137 59,376 63,508 60,863 7,53,455
   
Balance c/f 84,950 1,47,234 2,30,601 2,67,804 3,04,538 3,55,959 4,17,123 4,89,571 5,69,708 6,29,085 6,92,592 7,53,455 49,42,618

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5. References
Adah, A., 2016. Zero-based Budgeting System: Is Budgeting System the Determinant of
Budget Implementation in Nigeria?. International Journal of Economics and Financial
Research, 2(11), pp.192-198.

AHMODU, L.O., 2018. ASSESSMENT OF BUDGETING SYSTEMS IMPLEMENTATION

STRATEGIES IN SELECTED GOVERNMENT TECHNICAL COLLEGES IN SOUTHWEST GEO-
POLITICAL ZONE, NIGERIA.

Al-attara, H.A., Mashkourb, S.C. and Hassanc, M.G., 2020. Zero-based budget system and its
active role in choosing the best alternative to rationalise government
spending. International Journal of Innovation, Creativity and Change, 13(9), pp.244-265.

Al-ddin, A.E.S.A. and Ayedh, A., 2019. Factors Influencing the Adoption of Zero-Based
Budgeting Integrated with Cloud Based Platform (Paas) in Yemeni Public Sector: Moderating
Role of Government Intervention Policies.

Beredugo, S.B., Azubike, J.U. and Okon, E.E., 2019. Comparative analysis of zero-based
budgeting and incremental budgeting techniques of government performance in
Nigeria. International Journal of Research and Innovation in Social Science, 3(6), pp.238-243.

Broughel, J., 2020. Zero-Based Regulation.

Chinniah, A., 2013. An Assessment of Zero-Based Budgeting to Protect the Leakage of

Finance in Government and an Organizational Development. CLEAR International Journal of
Research in Commerce & Management, 3(5).

Coyte, R., Messner, M. and Zhou, S., 2020. The revival of zero ‐based budgeting: drivers and
consequences of firm‐level adoptions. Accounting & Finance.

Dali, N.R.S.B.M., 2021. Conceptual Framework for Determinants of Cloud Zero-Based

Budgeting Adoption: The Moderating Role of Government Intervention Policies.

de Campos, C.M.P., Rodrigues, L.L. and Jorge, S.M.F., 2017. The Role of Management
Accounting Systems in Public Hospitals and the Construction of Budgets: A Literature
Review. Public Health and Welfare: Concepts, Methodologies, Tools, and Applications,
pp.289-312.

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Ekanem, E.E., 2014. Zero-based budgeting as a management tool for effective university
budget implementation in University of Calabar, Nigeria. European Journal of Business and
Social Sciences, 2(11), pp.11-19.

Haxholli, B.N., 2015. Zero Based Budgeting in KCS Implementing Zero Based Budgeting
Method in Kosovo Correctional Service.

Heinrich, J., Garton, E. and Martin, B., 2016. Betting on Zero-Based Budgeting’s
Trifecta. Bain & Company. Pobrano z: http://www. bain. com/publications/articles/betting-
on-zero-based-budgetings-trifecta. aspx (8.03. 2017).

Ibrahim, M.M., 2019. Designing zero-based budgeting for public organizations. Problems

and Perspectives in Management, 17(2).

Kanungo, S., 2017. Government Budgeting: A study on Zero Base Budgeting. ODISHA

REVIEW, p.81.

Lorenz, A., 2015. Contemporary management accounting in the UK service sector (Doctoral

dissertation, University of Gloucestershire).

Petersen, F.C., Ramos Junior, A.C., Marques, M., Da Silva, H.A., Dalvi Dos Santos, P.R.,
Rodrigues, L.T., Rodrigues dos Anjos, J.L., Russo, R.M.D. and Ferreira Filho, V.M., 2022, April.
Zero Base Budgeting Applied to Oilwell Construction. In Offshore Technology Conference.
OnePetro.

Rassadina, A., 2017. ZERO-BASED BUDGETING: HISTORY AND MODERN

EXPERIENCE. ШЕВЧЕНКІВСЬКА ВЕСНА» Секція «Актуальні проблеми міжнародних
фінансів, p.12.

Rasugu, E.N., 2019. Factors Affecting Implementation of Zero-Based Budgeting In Chemical

Organizations: A Case of Diversey Eastern and Central Africa Limited (Doctoral dissertation,
United States International University-Africa).

Vaughan, T.S., 2018. CHARACTERIZATION OF OPTIMAL FACULTY ALLOCATION SUBJECT TO A

BUDGET CONSTRAINT. AMERICAN ASSOCIATION OF UNIVERSITY ADMINISTRATORS, 33(1),
pp.82-93.

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