4/27/2020

ZERO BASE BUDGET

Evolution of Budgetary Reforms

BUDGETARY FOCUS ON MANAGING REFORM

EVOLUTION INPUTS & OUTPUTS,
INCREMENTAL IN
ORIENTATION
TIMELINE
POLICY MAKING STYLE

Performance Budget Focus on national planning- Efficiency oriented

(wartime-1960 ) inputs, outputs, effects,
• Policy oriented
• PPBS(!960s-1970s) .taxation
• Decision making Oriented
• ZBB(1970-1980s) • Focus on policy pritizationor
Dr. Vaishali Saxena • Efficiency oriented.
• Cutback management • Cost cutting ,efficiency
• Decision making and control
Department of Public Administration (1980s) reviews, privatization,
over spending.
• Budgeting for Results contracting out,
University of Lucknow • Performance indicators,
• Main reform Issues
output targets and evaluation

CONCEPT OF ZBB
BUDGET SYSTEMS- COMPARISON
Traditional Financial New Financial  ZBB is a type of budgeting process s where each item
Culture Culture of expenditure under consideration is evaluated from
Control by item scratch for the new financial year and starts with zero
  Control by Budget caps. and taken when only its needs are fully justified.
expenditure details.
 Control by process &  Control by fiscal targets  The primary objective of ZBB is to reduce and end all
procedure (Detailed supplemented by unnecessary expenditure.
Regulations& Scrutiny of budgeting for results.  ZBB is in contrast to traditional budget which is
inputs.  Control by benchmark incremental and based on previous budgets.
Control by negotiations

as increments on top of and baseline.  The principle of ZBB requires the expenditure on even
historical base  Control by managerial ongoing activities to be justified….. It is to be applied
 Control by bureaucratic culture. not only to items of non development expenditure but
politics (incremental also to those of development expenditure. ( seventh
politics). five year plan

DIFFERENCE BETWEEN TRADITIONAL ZBB- HISTORY

BUDGET AND ZBB
Traditional Budget
 Previous year budget taken
as base.
 It is more cost accounting
oriented.
 In traditional budget
justification of line item and
expenditure is not needed
 No alternative is given..
Zero Base Budget
 ZBB re-evaluates each
activity, so starts from
scratch.
 It is more decision oriented.
 In ZBB all expenditure require
proper justification as well as
ranking of activities.
 It also provides for
alternatives.
The idea of ZBB was given by E. Hilton in 1924.
 In1952, Verne Lewis advocated the new ZBB
approach.
 1964,ZBB was first time introduced by US department
of agriculture.
 1973, ZBB was adopted by Georgia state.
 In 1983, Deptt. Of Science and Technology GOI used
it.

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ZBB-PROCESS
DECISION UNIT
Identification of Decision unit

Formulation and development of decision  Decision unit is a distinct segment of an

packege
organization for which budget is
prepared.
Evaluating and ranking decision package
 This segment may be a program, activity
Preparing Budget by allocating resources or project.
to activities or decision package.
 This segment should not be too small nor
too big in terms of expenditure.
Follow up and Revision

DECISION PACKAGE IS COMPREHENSIVE

JUSTIFICATION OF BUDGET ESTIMATES
ZBB-MYTHS & REALITIES
It contains:
 Goals/objectives of various activities of various ZBB means budget from zero
functions/activities of the unit.
 It means to build a sustainable culture of cost mgt.
 Benefits to be derived from financing the
Implimentation of ZBB requires ‘cutting to bones’.
activity/program.
 cost cutting depends on company’s top down
 Relevance of the activity/program
target.
 description of the function or activity of decision unit.
 Consequences of non funding.
ZBB only focuses on SG&A
 The project and estimated cost of the package.  ZBB applies to all type of cost expenditures.

 The yearly phasing of the proposed expenditure/ project ZBB is slash and burn process not for growth
cost. oriented companies.
 Alternative way of performing the same activity.  It is successful for growing companies.

ZBB-ADVANTAGES ZBB-DISADVANTAGES
 HighManpower Turnover
 Efficiency  Time consuming
 Accuracy  Lack of expertise
 Budget Inflation  Cumbersome.
 Coordination and communication
 Reduction in redundant activities.