Kaizen budgeting is the method of estimation of expenses. In this method, we keep the option to improve it in future. If we find the new method of cost reducing, we reduce the budget under kaizen budgeting. We make pure flexible budget under kaizen budgeting.
Under kaizen budgeting, management finds the new way to reduce the cost and then reduce its budget. So that same capital can be used in other important projects. If we have to reduce the cost of specific project, a manager for this will be responsible. He will reduce the cost and then improve his budget. If he will achieve his target within one year, he will get its reword.
Kaizen means "Good Changing with continuous improvements." When we attach this world with budgeting, it means, we have the target to cut our cost and improve our product. It will increase our sale and profit. For this, manager will do small changes in his way of production and system of producing new goods. In this method of budgeting, we try to best to remove every type of wastage.
We can compare it with a clerk's family budget. A private clerk who has 4 children and wife. He has to survive his family with his tight budget. So, he will cut all useless and will focus for covering the basic needs of family. Like this, we have made a budget where we have made the target of our very very limited resources, company will reduce all useless expenses step by step by improving the quality of producing the product. So, this will be possible on kaizen theory of budgeting.
In this method, manager will not be strict like a dictator. He will always demand the suggestions from his lower level of management. Good suggestions will be accepted. On this basis, budget will be improved.
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