Zero Base Budgeting 2

8/2/2019 Zero Base Budgeting 2

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Zero-Based Budgeting - ZBB

Zero-based budgeting is a technique of planning and decision-making which reverses the workingprocess of traditional budgeting. In traditional incremental budgeting, departmental managers justify onlyincreases over the previous year budget and what has been already spent is automatically sanctioned. Noreference is made to the previous level of expenditure. By contrast, in zero-based budgeting, everydepartment function is reviewed comprehensively and all expenditures must be approved, rather than onlyincreases. [1] Zero-based budgeting requires the budget request be justified in complete detail by eachdivision manager starting from the zero-base. The zero-base is indifferent to whether the total budget is

increasing or decreasing.

The term "zero-based budgeting" is sometimes used in personal finance to describe the practice of budgeting every dollar of income received, and then adjusting some part of the budget downward for everyother part that needs to be adjusted upward. It is more technically correct to refer to this practice as "zero-sum budgeting".

Zero based budgeting also refers to the identification of a task or tasks and then funding resources tocomplete the task independent of current resourcing.

Advantages of zero-based budgeting

1. Efficient allocation of resources, as it is based on needs and benefits.

2. Drives managers to find cost effective ways to improve operations.

3. Detects inflated budgets.

4. Useful for service departments where the output is difficult to identify.

5. Increases staff motivation by providing greater initiative and responsibility in decision-making.

6. Increases communication and coordination within the organization.

7. Identifies and eliminates wasteful and obsolete operations.

8. Identifies opportunities for outsourcing.

9. Forces cost centers to identify their mission and their relationship to overall goals.

[edit] Disadvantages of zero-based budgeting

1. Difficult to define decision units and decision packages, as it is time-consuming and exhaustive.

2. Forced to justify every detail related to expenditure. The R&D department is threatened whereas theproduction department benefits.

3. Necessary to train managers. Zero-based budgeting must be clearly understood by managers atvarious levels to be successfully implemented. Difficult to administer and communicate thebudgeting because more managers are involved in the process.

4. In a large organization, the volume of forms may be so large that no one person could read it all.Compressing the information down to a usable size might remove critically important details.

5. Honesty of the managers must be reliable and uniform. Any manager that exaggerates skews theresults. { http://en.wikipedia.org/wiki/Zero-based_budgeting}

What Does Zero-Based Budgeting - ZBB Mean?

A method of budgeting in which all expenses must be justified for each new period. Zero-based budgetingstarts from a "zero base" and every function within an organization is analyzed for its needs and costs.Budgets are then built around what is needed for the upcoming period, regardless of whether the budget ishigher or lower than the previous one.

ZBB allows top-level strategic goals to be implemented into the budgeting process by tying them to specificfunctional areas of the organization, where costs can be first grouped, then measured against previousresults and current expectations.

Investopedia explains Zero-Based Budgeting – ZBB

Because of its detail-oriented nature, zero-based budgeting may be a rolling process done over severalyears, with only a few functional areas reviewed at a time by managers or group leadership.

Zero-based budgeting can lower costs by avoiding blanket increases or decreases to a prior period's

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budget. It is, however, a time-consuming process that takes much longer than traditional, cost-basedbudgeting. The practice also favors areas that achieve direct revenues or production; their contributions aremore easily justified than in departments such as client service and research and development. {http://www.investopedia.com/terms/z/zbb.asp}

Zero Based Budgeting (ZBB) is a technique of making plans and taking decisions, which overturns theworking procedure in traditional budgeting. In case of Zero Based Budgeting, the function of each andevery department is analyzed and evaluated in a comprehensive manner, and all expenses increase onlyafter such approvals. When discrepancies arise, Zero Based Budget requires detailed justification fromevery divisional manager, starting from the lowest levels, called the Zero-base. The Zero-base is however,least bothered about the overall increase or reduction of the budget.

Activities of Zero Based Budgeting:

• Zero Based Budgeting is useful for personal finances, as it describes the budgetary practice andcalculates figures on per unit accumulation of money

• Different financial groups prefer Zero Based Budgets, for assured control on useless expenditures.This is precisely why it has retained equal popularity in both public and private commercial sectors, ever since its conceptual inception.

•

The preparation of Zero Based Budgeting is supported for the sake of Government Budgets. Herethe expenses tend to become uncontrolled, in trying to maintain parity between the spendings of the lastand the current years. In other words, the justification of a project on government levels is done by thisbudgeting procedure.

• Zero Based Budgeting offers an overview of the projects with their previous costs, by dismissing theearlier ones.

What is so beneficial about Zero Based Budgeting:

• Enhances coordination and communication within the enterprise, for positive effects and better output levels

• Provision for more schemes and responsibilities, to further encourage the staffs

• Compels the spending centers to understand their missions and their inter-relationships, for achieving overall goals

• Acts as a driving force for managers to search for cost-effective measure to develop the operationsfurther

• Quick identifications and immediate eliminations of unused and outdated operations

• Recognizing opportunities for financial outsourcings

• Used extensively in the service sectors and departments for easy identification of the outputs

• Helps in the detection of inflationary budgets

• The financial resources are efficiently allocated, on the basis of requirements

Zero Based Budgets: (Criticisms)

• No proper training of officials on the managerial levels.

• In the micro-management levels, Zero Based Budgeting spends the least amount of time on issuesthat really affects the development and progress of a company, and meddles with trivial issues, which

may or may not have any effect on the operations of the company.

• Forceful justification of all expenditure details is demanded {

http://www.economywatch.com/budget/types/zero-based.html}



Zero Based Budgeting (ZBB) is a method of budgeting which requires you to justify all plannedexpenditures for each of your new business period.

It defers from traditional incremental methods which may only require you to explain the amounts you needin excess of the previous period's funding.

For example, if your company used ZBB, each department would have to justify its funding every year. That

is, funding would have a base at zero. A department would have to show why its funding efficiently helpsthe company toward its goals.

Zero based budgeting is especially encouraged for charity and government budgets because expenditurescan easily run out of control if it is automatically assumed that what was spent last year must be spent thisyear.

Unique characteristics

• Requires you to justify and prioritize all activities before allocating any resources.

• All your business forecasts should start from a zero base by justifying all expense requests incomplete detail. The zero base is indifferent to whether the total forecast is increasing or decreasing

• Requires you to group all relevant activities into decision packages. You justify each in terms of thecompanies’ overall business objectives.

• Requires you to rank Packages in order of priority.

• Zero-Base Budgeting is a technique that helps to enhance good planning and decision-making for your business. In other word, it reverses the working process of the traditional forecasting methodsyou may have been accustomed to.

• In the traditional incremental approach, a manager needs to only justify increases over the previousyear’s projections. This means, what has been already spent is automatically sanctioned. In thecase of ZBB, you do not make reference to the previous levels of expenditure. You must reviewevery business function comprehensively and all associated expenditures rather than approvingonly increases.

The term "Zero-Based Budgeting" is sometimes used in personal finance to describe the practice of planning for every dollar of income that you receive, and then adjusting some part of your plan downwardfor every other part that you may need to adjust upward

Advantages

1. Results in efficient allocation of resources as it is based on needs and benefits

2. Drives managers to find out cost effective ways to improve operation

3. Helps Detects inflated forecasts

4. Useful for service business where the output is difficult to identify

5. Increases staff motivation by providing greater initiative and responsibility in decision-making6. Increases communication and coordination within the company

7. Identifies and eliminates wastage and obsolete operations.

8. Identifies opportunities for outsourcing.

9. Can encourage managers to look more critically at the way in which services are provided.

10. Forces cost centers to identify their mission and their relationship to overall goals.

Disadvantages

1. Difficult to define decision units and decision packages, as it is very time-consuming andexhaustive.

2. Forces you to justify every detail related to expenditure. As a result activities like research and

development are threatened whereas activities like production benefit.3. Necessitates training of managers. Zero based budgeting should be clearly understood by

managers at various levels otherwise it would not be successfully implemented .

4. In a large company, the volume of forms may be so large that no one person could read it all.Compressing the information down to a usable size might remove critically important details



5. Honesty of the managers must be reliable and uniform. Any manager that is prone to exaggerationmight skew the budget results.

The budgeting process speaks volumes about your business strategy and could make the differencebetween success and failure of your small business. We advise that you contact your CPA for anindependent opinion about your draft , or contact us, for online support. {http://www.small-business-accounting-guide.com/zero-based-budgeting.html}

Return from Zero based budgeting to budgeting.

IMPLEMENTATION OF ZERO-BASED BUDGETING : The zero-based budgeting system puts the burdenof proof on the manager, and demands that each manager justify the entire budget in detail andprove why he or she should spend the organization's money in the manner proposed. A "decisionpackage" must be developed by each manager for every project or activity, which includes ananalysis of cost, purpose, alternative courses of action, measures of performance, consequences of not performing the activity, and the benefits.

This approach is different than traditional budgeting techniques due to the analysis of alternatives.Managers must identify alternative methods of performing each activity first, such as evaluating thecosts and benefits of making a project or outsourcing it, or centralizing versus decentralizing

operations. In addition, managers must identify different levels for performing each alternative methodof the proposed activity. This means establishing a minimum level of spending, often 75 percent of the current operating level, and then developing separate decision packages that include the costsand benefits of additional levels of spending for that particular activity. The different levels allowmanagers to consider and evaluate a level of spending lower than the current operating level, givingdecision-makers the choice of eliminating an activity or the ability to choose from a selection of levelsof effort including tradeoffs and shifts in expenditure levels among organizational units.

The decision packages must be ranked in order of importance once they have been created. This allowseach manager to identify priorities, combine decision packages for old and new projects into oneranking, and allows top management to evaluate and compare the needs of individual units or

divisions to make funding allocations. In this respect, zero-based budgeting is quite different thantraditional rolling budgets. Rolling budgets often appeal to people who prepare budgets because theymake budget development much easier. Managers can add an inflation factor to the previous year'sbudget and then include any adjustments for major changes. Rolling budgets also give managementa concrete number to help make comparisons from year to year. However, traditional rolling budgetshave a tendency to create conflict; they can create an incentive to spend money carelessly in order to justify the next year's budget. They can also create inefficient operations due to the fact that individualdepartments or units do not have to justify expenditures based on operations, but only on the prior year's expenditures.

Zero-based budgeting addresses such problems that can occur with traditional rolling budgets. In zero-based budgeting, each dollar spent by management must be justified with a detailed account of what

will be purchased, how many labor hours are needed, what problems will be faced, and so forth. Thisallows management an opportunity to review operations in depth and make recommendations for changes to if necessary. The zero-based budgeting process helps managers identify redundanciesand duplications among different departments, concentrating on the dollars needed for proposedprograms as opposed to percentage increases or decreases form the previous year. Specificpriorities of departments and divisions are identified more easily in zero-based budgeting. Theprocess also allows for the comparability of different departments as to the respective prioritiesfunded. Zero-base budgeting enables a performance audit to determine whether each project or activity has been performed as efficiently as planned.

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ZERO BASE BUDGETING: A MANAGEMENT PLANNING AND

CONTROL TECHNIQUE

- - U. Pancras

Zero Base Budgeting (ZBB) as a system of budgeting was used by the US

Department of Agriculture for a year in 1964. It was developed in its present form by

Peter A. Phyrr at Texas Instruments, USA. It was given a boost subsequently by Jimy

Carter who as the governor implemented the syste in state of Georgia and later as

the President in the Federal Government. Now ZBB has been proposed to be adopted

by Central Government in the budget preparation for the year 1987-88 onwards.

Thus ZBB has been developed and used in industrial and governments operations. ZBB is formally defined as “operating planning and budgeting process which

requires each manager to justify has entire budget request in detail and shifts the

burden of proof to each manager to justify why he should spend any money. This

procedure requires that all activities and operations be identified in decision

packages which will be evaluated and ranked in order of importance by systematic

analysis.”

This definition needs some explanation.

i. i. A manager may be in charge of more than one function. A

secretary in the Govt. could be in charge of two or more diversified

departments, similarly one executive could be in charge of more than

one function say purchasing and Legal in an industrial organisation.

The budget is prepared for each identifiable function which are called

Decision Units.

ii. ii. A manager, in order to justify why he should need any money

has to identify the activities or programmes and jsutify each of those

which are called “Decision Packages”.

iii. iii. These activities / programmes will be evaluated and ranked on

the basis of the benefits to be realised and costs incurred. The

measure should then be the Benefit Cost Ratio.

iv. iv. The choice of the Decision package will be limited to the funds

available and the one offering maximum benefits.

Now, one can define Zero Base Budget more, comprehensively. ZeroBase Budgeting (ZBB) is a structured and systematic process requiring each

manager in charge of a function or department or Decision Unit (DU) to

jsutify in details his entire budget presented in terms of programmes and



activities basis of Benefit Cost Ratio (BCR) facilitation optimum allocation of

resources to the entire organisation.

Steps involved in implementing ZBB1. 1. Identification of Decision Units (DU) :

The Decision Units will be based on the level of responsibility. Normally DUs are identified as different departments. However the basic criteria should

be that it is capable of carrying out different programmes or activities to

achieve one objective. Thus those are responsibility based budget centres

which are identified as units or submits of an organisation and which are under

the change of different senior officers. They have certain responsibility for

producing goods or services, or for carrying out certain activities spending the

funds of the organisation to achieve the goals or targets laid for them.

Education Department could well be a function or a DU, a major DU with

the objective of increasing literacy and providing quality education as the

objectives. However Adult Education, Child Education, Technical Education

could be sub functions. In the context of ZBB, these are considered as

separate DUs as the objective of each is different and each could be under a

senior and responsible officer.

Similarly Maintenance Department of an industrial organisation could

be a Decision Unit. At times where the Maintenance Department is divided

into Electrical maintenance, Mechanical Maintenance or and where each is

under the charge of a responsible officer each could form a separate DU.

2. 2. Preparation of Decision Packages :

“ The decision package is the building block of the ZBB concept”. A

number of decision packages make up one Decision Unit. These are the

activities or programme on which the manager in charge can take decision to

carryout or drop.

In the example given earlier, if adult education is the DU, the objective

of improving literacy among adults can be achieved through starting adult

education centres in each district or through TV programme on adult

education etc,. These activities are the Decision Packages. In case of

Agriculture, Depending of the existing irrigation tanks, construction of motor

wells, multiplication of seeds are some of the DPs. In case of maintenance

function, preventive maintenance, and breakdown maintenance of eachgroup of machines could be DPs.



These DPs are independent activities, each capable of being measured

in terms of costs incurred, targets completed and objectives achieved. They

should be mutually exclusive in making up the overall workload of a DU.

Certain guidelines can be followed to identify the DPs in a DU. DP can

be any one of the following.

i. i. Independent activities.

ii. ii. Project or Programme. This is similar to activities but

comprises of more activities.

iii. iii. Services received or provided.

iv. iv. Individual expenditure

v. v. People. If the activities are so small or very difficult to

measure, the DU could be divided into the people comprising it. When

this criteria is followed care should be taken that there is nooverlapping of people and activities in the Decision packages of one

DU.

It is important that Decision packages he developed in an effective

manner. It involves examining alternative methods or activities of achieving

the objectives and different levels of efforts of performing the operations.

For example maintenance of a machine can be done by own staff or

alternatively given to outside agency. One can do preventive maintenance

(either by own staff or outside agency) in varying time periods indicating

different levels of effort. Real alternatives available to the manager come

from the activities covering different methods and varying levels of effort.

The DPs will contain the following information

- - General and reference

information

- - Goals of DU

- - Description of the

programme and activity

- - Specific measure of

performance or targets.

- - Benefits expected from the

performance

- - Consequences of not

approving the package.

- - Projected or expected costs.



- - Activity – costs and benefits

for all alternatives studies including the recommended one.

3. 3. Evaluation of Decision Packages :

Evaluation of packages is carried out on the basis of Benefits and Costs.

The measure of importance is the Benefit Cost Ration (BCR). The alternative in

each programme or activity which provides the best BCR is chosen at the first instance. Further the BCR should be more than the minimum level. The value

should be one or more.

When costs are incurred and the benefits obtained in the same year,

the calculation of the ratio is more straight forward. However if the benefits

are obtained over a long period, the BCR should be based on the present

values of benefits and costs discounted at appropriate rates. Discounting

becomes necessary more in case of government expenditure in development

than in operational expenditure.

The benefits and costs are valued on the basis of their financial impact

in case of corporate or private organisation i.e., the benefits are those which

accrue to the company and ultimately realised in terms of cash and similarly

the costs are those which are incurred by the company. In case of

governmental expenditure, the more appropriate measure is social values.

The benefits and costs should be valued on the basis of methods used in

calculating Social Benefit Cost Ratio (SBCR) to optimize the social benefits.

The information for each alternative will have to be collected as per the

proforma given below: The specific programme is selected on the basis SBCR

but the funds will be provided on the basis of financial cost. In case of

private organisation, the BCR is used.

------------------------------------------------------------------------------------------------------

Cost Benefits Ratio

Financial Social Financial Social BCR SBCR

------------------------------------------------------------------------------------------------------Alternativ

e 1

Alternative 2

Alternative 3

----------------------------------------------------------------------------------------------------- ZBB demands review of current activities. The review will have to

consider the balance expenditure, the likely benefits and the relevant BCR. In



this way the current activities are compared with the proposed activities and

ultimately an acceptable list of activities are selected for each decision every

year. At the end of evaluation, a list of programmes with acceptable Benefit

Costs Ratio emanates.

4. 4. Ranking packages in the order of importance :

The DPs of individual DUs are brought together and ranked in the order of

importance on the basis of BCR. Thus a second list is prepared listing the DPs

of various DUs in descending order of BCR. From this list, the DPs are chosen

from the top one after another to make up the available quantum of funds.

The ranking and consequent choice of DPs should cover all activities of

all departments or theoretically of entire organisations.

Specimen and Simplified Ranking Sheet A Specimen ranking sheet consisting of activities of three different

departments in a state government is given below. The example is illustrated

and should not be considered as reflecting the true comparative positions of

activities of the functions.

Agricultur

e

Electrici

ty

Community

Deve.

Budget

Outlay

Rs.Lakhs

Benefits

Rs.Lakhs

BCR Rank

No.

Discrip.

No.

Discrip.

2.Provi

d-ing &

Strengt

he-ning

HT feeders

No.Dis.

19.00

34.20

1.8

1

5.Strength

ening of

Block

Admn.

3.08

5.39

1.75

2

2.Integrat

ed plant

protection

0.92

1.61

1.75

3

5. Land

Reclamati

on

3.00

4.80

1.60

4



5.Training

Officer

.30 .48 1.60 5

Farm

Mechanisa

tion

2.20

3.30

1.50

6

When two activities possess BCR of same value the activity which

produces higher benefits in absolute terms is ranked first.

In case of government expenditure, theoretically, ranking should be

made for all functional ministries, state government, public sector

organisations together. This would be an impossible task. In some cases it

would be incorrect also because states are provided with funds through

formula not related to the programmes in the above list but related to

population, earning levels etc,. Ranking could be done for each state

government. Possibly the compromise might have to go even further down

to individual ministries in case of government.

In case of private enterprise this would impose a heavy burden on top

management. Realistic compromise is to have ranking made of activities at a

lower level say the Plant Manager, Administrative Manager levles.

Role of Committed Expenditure in RankingThe ranking may not be used to approve very high priority or

committed or policy programmes. Some of the pet programmes of the

Managing Director or Chief Minister could fall under this category. By this it

does not mean that those would not stand the test of evaluation and ranking.

In fact these programme also should be subjected to objective scrutiny,

evaluation and ranking. Even though these activities would have to be taken

up, the management would have an opportunity to know the likely cost or loss of carrying on or undertaking a new programme with available data.

Alternatively the decision maker might even decide to change his decision on

the basis of the objective analysis.

As we have seen, the committed expenditure will have to be

accommodated. Similarly the salary and other man power overhead will have

to be accommodated in the short run. This can happen both in industrial as

well as governmental situations. How this can be solved in a simple situation

is explained below.

The tabulation shows the activities ranked in terms of BCR



Activity

Commit

ted Exp.

Rs.

Lakhs

Other

Exp.

Rs.Lakh

s

Total

Rs.Lakh

s

Benefit

s

Rs.Lakh

s

BCR

Ranking

1

3

2

5

4

50

60

30

80

70

----------

290

-----------

100

80

70

120

80

-----------

450

-----------

150

140

100

200

150

-----------

740

-----------

-

300

266

180

340

247

-----------

1333

-----------

2

1.9

1.3

1.7

1.65

1

2

3

4

5

If we are to find out the combination of activities resulting in maximum

benefits with the two assumption, the committed expenditure is kept at 200

lakhs and the total fund available is Rs.500 lakhs, the solution could be found

out manually through trial and error method.

The activities would have to be chosen on the basis of other expenses

from the list starting from 1st ranked activity. With the maximum available

fund of Rs.3 lakhs for other expenses. It may be seen that the combination

of activities 1, 3 and 5 would produce the highest quantum of benefits.

However a more complicated situation with numerous programme and more

constraints will have to be tackled through use of computer.

Benefits for different alternative combination

Combinatio

n

Expression Benefits Net Benefit

1, 3, 2

200 + 250 =

450

746

296



1, 2, 5

1, 5, 4

3, 2, 5

3, 5, 4

2, 5, 4

1, 3, 5

1, 3, 4

3, 2, 4

200 + 290 =

490

200 + 300 =

500

200 + 270 =

470

200 + 280 =

480

200 + 270 =

470

200 + 300 =

500

200 + 260 =

460

200 + 230 =

430

820

887

786

853

767

906

813

693

330

387

316

373

297

406

353

263

Combination of 1, 3 and 5 is the best producing highest quantum of

benefits.

Benefits of ZBBIf ZBB is implemented and operated delegently, the organisation can

expect the following benefits accruing to it. These are the plus points of

ZBB, the reasons of its popularity.

Identification and sharpening of the objectives can be achieved out not

only by the management but all levels of management down to the level for

which the budget is prepared. This would lead to effective translation of

objectives into programmes and activities.

Conventional budget concentrates on expenditure, performance budget

transfers the attention to the physical performance relating to expenditureand ZBB focuses on the benefits resulting from each activity. The benefits

are thus optimised in ZBB.



Continuous reviewing of on going schemes ensure that funds are

always utilised in the best possible projects and manner. Otherwise normally

once the programme or activity was approved, then it is rarely revalued. The

effectiveness is taken for granted or not monitored constantly. In ZBB those

activities which had outlived their utility are pruned.

Often the organisation is not flush with funds. Finance is a scarce

commodity and the top management knows it best. Due to shortage of funds

top management might decide to reduce the budget. ZBB with the list of

activities arranged in the order of importance of BCR, helps the top

management in this regard. Instead of introducing ad hoc cuts in budget,

the activities making up to the quantum of funds available are chosen.

Methodical preparation and presentation of ZBB reduces the top

management efforts in reviewing and settling the department budget.

The private sector organisation find ZBB a tool not only to manage

overhead activities with more flexibility but also to learn more about the

organisation and its activities and to improve the efficiency and effectiveness

of the operation.

ZBB compared with conventional Budgets

There are many who argue that all the above benefits are available in

the conventional budgeting systems. While there is some substance in this

argument, it is not wholly correct. While many of the benefits no doubt could

be derived by a very effective budget officer or committee in case of

conventional budget, ZBB system envisages all review and examination as a

part of the formal system. This has been diagramatically shown below.

Conventional

Budget

Performance

budget

ZBB

Expenditure Expenditure Expenditure

Activity

Benefits

Basis of

Budget & Activity Activit

y

Activity



Review

Discretion

in Review

Benefits

Benefits

Benefits

Benefits

Benefits

Application of ZBBThe pioneer, Peter Phyrr had indicated that ZBB cannot be applied to

LMO costs (direct labour, materials and overheads) The budget for those

items is prepared by multiplying units of output by standard unit costs

developed by engineering studies with emphasis on minimizing the costs.

Fixed overhead costs, called actionable or discretionary even though

accounting only a small portion of total budgets, are usually difficult to plan

and more difficult to control and offer the management the greatest lever to

affect profits. These discretionary expenses could be marketing, R&D,

Industrial Engineering, Production Planning, Service and Support functions.

One may identify a facet of LMO to the above situations. ZBB

approach, the analysis of the activity in different services levels could well be

applied to the quality aspect of the product. Finding the trade-off between

the costs of making a product of different levels of quality and the relevant

benefits realised in terms of sales and profits would be a very profitable

exercise if formally introduced in the budgeting exercise.

In USA, practically all private corporations using ZBB have confined it

to overhead expenses Government bodies employing ZBB have applied it to

programme expenditure as well as the support costs.

In Indian context, programme expenditure can be construed as plan

expenditure and support costs to mean non-plan expenditure. It would be

interesting to observe how ZBB is going to introduced for the latter

especially even Performance Budgeting has not been properly introduced.

Problems:

The benefits explained above would be realised only when ZBB is

implemented effectively. In actual practice one has to tackle so many

problems to reap the benefits.

One of the basic obstacles encountered in USA where ZBB originated

and was accorded enthusiastic reception and likely to be encountered here is

that senior officers in charge of different functions might assume that each

one’s programmes were obsolutely necessary and need to be implemented.



This could even lead one to exaggerate the benefits and reduce the costs.

The scope for such manipulations would be more when social cost benefit

analysis is followed.

Benefits of many programmes or decision units are not measurable or

quantifiable. At times there could be many claimants for the same benefits.

Backbone of ZBB is the evaluation of benefits and ranking on that basis.

When this is not possible or is carried out on an inaccurate manner, ZBB

would not be effective.

Introduction of ZBB would result in enormous paper work. Looking for

alternatives would also result in enormous delays. Speed in an essential

factor in decision making in competitive and dynamic situations.

There would be committed or policy expenditure and those cannot be

considered within the purview of ZBB.

Divergent activities are impossible to be compared with one another

and ranked. Education, health and policy activities cannot be compared with

each other. Therefore, ZBB cannot be taken to its logical end. There have to

be adjustments and compromises.

ConclusionSome of the problems listed above are real. While implementing ZBB one

has to keep them in mind and find solution to each. The evaluation and ranking

would have to be done as objectively as possible within similar functions. There

are vital benefits available to the industry or government with implementation

of ZBB. The areas where in ZBB could be applied will have to carefully chosen

and ZBB applied delegently. The one can expect to keep the full benefits of

Zero Base Budgeting.

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Zero Base Budgeting 2