Zero-Based Budgeting

The traditional budgeting is based on incremental decision making; it begins with estimation of current costs hence it is an accounting-oriented approach while no review of ongoing activities is undertaken for allocating funds. In zero-based budgeting, the organization should not take for granted the expenditures incurred in previous years rather they should start afresh insofar as expenditure in coming years are concerned. Efficiency and effectiveness are the hallmarks of ZBB as justification for each expenditure proposal is to be made in concrete terms. E. Hilton and Peter A. Pyhrr are the proponents of this idea and it was first introduced in the USA.

All the expenditures are analyzed on zero base; those falling within the criteria set for assessing the proposal are accepted while the rest are eliminated or altogether dropped. Thereby low-priority programmes are replaced with ones of higher impact and resources are allocated within overall objectives of the planning policy. However, it requires expert personnel as well as effective management information system.

Past performance or historical data is not considered as building block for demanding new expenditure. The manger has to equivocally justify total cost versus total benefits in measureable terms. Another feature of ZBB is saving as the expenditures, which keep multiplying year after year just on the basis that they were previously sanctioned, are discontinued and fresh expenditures are analyzed item by item. This equally applies on fresh and existing expenditures.
It requires detailed analysis of the projects as well as setting up of targets rationally. At the time of providing justifications, a lot of information is exchanged which not only provides help in emphasizing efficiency but also in evaluating the effectiveness of the administration. It’s a combination of planning, programming and budgeting system as it clarifies the justification for which money is being provided for.

Being a systematic process, the management at different levels finds it convenient to evaluate the programme and helps in time of contingency to review priorities. Similarly, it allows management to control overhead costs and sharpens their analytical skills. It’s a kind of administrative development. To undertake ZBB, a lot of investment — both in human and IT fields — is required since decisions are taken in the light of data analyzed from different angles. So, it may be preferred in 3 to 7 years planning while the traditional budget approach is resorted to in areas of governmental activities where it’s difficult to quantify gains in measureable terms.

Since ZBB rationalizes the work and mode of completing development activities, therefore, it declares staff surplus or redundant, creating a sense of insecurity, ergo restlessness, among the employees. The solution to this problem is that surplus employees may be adjusted somewhere else. But the decision-makers have to ensure job-related issues before any decision.

To ensure the applicability of ZBB, special training must be incorporated in training module of capacity building of government officers especially of those relevant to budgeting. The use of IT and other modern-day technologies must be introduced to help administration get rid of unnecessary paper work, hence improve managerial efficiency. As a first step, ZBB can be undertaken in selected areas and its scope can be further widened spanning from 2 to 5 years programmes.
The short- and long-term gains of ZBB are: betterment in performance, maximum utility of resources, availability of more resources for new development projects, etc. It shall also curtail discretionary powers and reduce maladministration. Completion of projects in time and management of overrun cost shall improve efficiency and check unnecessary government

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