Two Theories of Zero-Base Budgeting

Abstract

The literature on zero-base budgeting (ZBB) has been confused by the implicit (but incorrect) assumption that there is a single, comprehensive theory of ZBB applicable to both the private and public sectors as well as to all levels of government. This assumption, which arises out of the circumstance that must authors and practitioners fail to distinguish properly between the theory and the method of ZBB, has strongly colored the ad hoc interpretation of user experiences with ZBB. Evaluation of ZBB efforts has occurred within the framework of a “theory” that literally does not exist. A specific set of techniques or procedures (decision packages prioritized or ranked by managers subject to budget guidelines) has been treated as a theory of ZBB (which must address the larger question of to which types of budgeting decisions those techniques can he successfully applied and under what environmental conditions). This paper argues that we require two theories of zero-base budgeting as well as a separate theory of zero-base review (ZBR) in the public sector. One theory of ZBB must deal with indirect costs in business or government: another theory of ZBB, with discretionary spending in government because of the environmental differences between the private and public sectors, and third, a theory of ZBR is needed for nondiscretionary spending in government. By extension of the analysis used to delineate these theories, we should anticipate possible variations by level of government and type of business (e.g., industrial versus service.).