The two dominant forms of budgeting processes are traditional and zero- based. Business planning is usually a combination of the two.
Traditional budgeting:
1. It is based on a review of historical performance and then the projection of such findings to the future with modifications.
2. If inflation is high, for instance, cost trends of the last several years are projected forward but with adjustments both for inflation and for projected growth or decline in business activity.
3. Historical sales patterns, using established trends in sales growth, are projected; new sales from planned new product introductions are then added.
Zero-based budgeting:
1. It is the creation of a completely new budget from the ground up—as if no history existed.
2. When using this method, the operation must justify and document every item of expenditure and income anew.
