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Zero-Based Budgeting -ZBB
Introduction
ZBB is a management tool used to help organizations achieve more cost-effective avenues for the delivery of services. It requires that programs and services be justified from the ground up each budget cycle while using the previous year’s budget to provide cost information. The Objective of Zero Based Budgeting is to “reset the clock” each year. The Traditional incremental budgeting assumes that there is a guaranteed budgetary base-the previous year’ level of appropriations -and the only question is how much of an increment will be given. Zero Based Budgeting implies that managers need to build a budget from the ground up, building a case for their spending as if no baseline existed- to start at zero. Resources are not necessarily allocated in accordance with previous patterns and consequently each existing item of expenditure has to be annually re-justified. When implemented properly ZBB enables an organization to plan and make decisions about the most efficient and effective ways to use their available resources to achieve their defined mission, goals and objectives. Put differently, the purpose of ZBB is to reevaluate and reexamine all programs and expenditures for each budgeting cycle by analyzing workload and efficiency measures to determine priorities or alternative levels of funding for each program or expenditure. Through this system, each program is justified in its entirety each time a new budget is developed
Benefits of ZBB
ZBB addresses and supports comprehensive planning, shared decision-making, the development and application of strategies and allocation of resources as a way of achieving established goals and objectives. In addition, ZBB supports the added processes of monitoring and evaluation. ZBB when properly implemented in an organization can assist to: Develop and/or modify their organization’s mission and goals Establish broad policies based on the mission and goals Provide a means of forecasting and planning, allowing you to analyze and forecast the impact on projects and activities and then plan accordingly. Efficiently identify programs that have the greatest impact on raising student achievement Allocate the appropriate level of resources to each program Monitor and evaluate each program during and at the end of its operation Report the effectiveness of each program Serve as an evaluation tool for changing responsibilities and workloads: can define peak periods, identify tools (vs. people) to improve efficiencies, identifies any needed cross-training Help to evaluate processes and policies that have been developed over time.
Processes for ZBB
Definition of the Mission and Goals of the Organization Usually the organization has already established mission and goal statements. However, it may be necessary to redefine the ones that are already in existence and/or create new ones Identification of the Organization's Decision Units and Decision Packages A ZBB decision unit is an operating division for which decision packages are to be developed and analyzed. It can also be described as a cost or a budget center. Managers of each decision unit are responsible for developing a description of each program to be operated in the next fiscal year or years.Decision units simply correspond to the formal organizational structure or may alter the number or size of decision units in order to stimulate creative thinking about how to get better results out o existing resources. Analysis of Each Decision Package This analytic process allows the manager of the decision package and its alternatives to assess and justify its operation. Ranking of Decision Packages Once the decision packages have been prepared, they are ranked on an ordinal scale i.e 1st, 2nd, 3rd, etc.in order of priority. In situation where a “bottom-up” approach and due to large number of decision packages,the ranking process would take place at a number of levels. Acceptance and Allocation of Resources Managers, following a review and analysis of all decision packages, will determine the level of resources to be allocated to each decision package. Managers at different levels of responsibility in the organization usually perform the review and analysis Budget Preparation,Monitoring and Evaluation The organization's budget is prepared following the acceptance and approval of the decision packages.The last major process of ZBB is monitoring and evaluation. The processes of planning, analysis, selection and budgeting of decision packages prepare the organization for operation during the next year