Zero-base Budgeting Research Articles

Local Government Microcomputer Information Systems

During the past several decades there have been numerous attempts to tie government performance to the annual budget. Usually these have been top-down directed budget systems, such as planning-programming-budgeting (PPB) or more recently, zero base budgeting (ZBB). Both of these systems were applied extensively at all levels of government, but nearly all such efforts have subsequently been abandoned. Why? Is government so different or difficult to manage?

An Overview of Budgeting Formats

Budgeting is more than collecting revenue and expenditure estimates. It is a fiscal process by which law enforcement officials select objectives and design ways to achieve those objectives. A budget, in other words, is a systematic plan which indicates where the money will come from, how much will be spent, and what it will be spent for. A budget is a fiscal plan for a given period of time. Although a variety of budgeting formats exist, this article discusses the four which are the most widely used today—line-item budgeting, program budgeting, performance budgeting, and zero-based budgeting. Understanding the various types of budgeting formats enables law enforcement officials to improve resource allocation and operation effectiveness and to develop short- and long-term plans for future operations. As long as resources continue to be scarce and retrenchment management is operative, law enforcement officials need to understand the budgeting formats discussed in this article.

Preparing the Operating Budget

The process of preparing a hospital pharmacy budget is presented. The desired characteristics of a budget and the process by which it is developed and approved are described. Fixed, flexible, and zero-based budget types are explained, as are the major components of a well-developed budget: expense, workload, productivity, revenue, and capital equipment and other expenditures. Specific methods for projecting expenses and revenues, based on historical data, are presented along with a discussion of variables that must be considered in order to achieve an accurate and useful budget. The current shift in emphasis away from revenue capture toward critical analysis of pharmacy costs underscores the importance of budgetary analysis for hospital pharmacy managers.

Cost Effective Opera Subsidy

Is it feasible to use the ideas of cost effectiveness analysis in the allocation of financial support to artistic activities? As a step towards answering this question, the way in which the Arts Council of Great Britain allocates subsidies to opera companies is considered in detail. It is concluded that the first stages of cost effectiveness analysis—the identification of objectives and the specification of measures of attainment—are certainly feasible. It is suggested that a relatively unsophisticated allocation technique using zero-based budgeting could then be used to good effect.

A Sensitivity Analysis of Variable-Base Budgeting

In variable-base budgeting an organization's resources are partitioned into two categories, those allocated to decision making and those allocated to implementation, and both sets of resources are further subdivided as necessary—between departments, across time stages, etc. The purpose of the budgeting effort is to maximize an expected return, which depends on that part of the organization's resources allocated to implementation, net of risk, which is reduced by allocating resources to decision making. In a previous paper it was shown that zero-base budgeting, in which substantial resources are allocated to decision making, is optimal only under certain conditions, one of which is that management resources must be costless. Since these conditions seldom obtain in the real world, it seems reasonable to examine the sensitivity of the risk/return performance of a zero-base strategy with respect to deviations from the conditions for which that strategy is optimal. The principal conclusion of the research reported here is that the mesa phenomenon—the relative insensitivity of the outcome of resource allocation decisions in the neighborhood of the optimum—applies to the allocation of management resources as well.

A zero-base budgeting process with goal programming feedback

This paper describes the decision process used to establish the annual budget for allocating general fund revenues to non-revenue generating service activities of a city. This process combines zero-base budgeting (ZBB) and goal programming. The goal programming model formalizes the relationship between the ZBB decision packages specified by city departmental needs and the planning issue goals identified by either the city council, the city administrative staff or a citizens' survey. A budget committee reviews input data, forms the model and uses its output to revise budget inputs. The goal programming model provides a format for (1) effectively evaluating budget assumptions, (2) consistently representing the relationships between the ZBB decision packages and the city planning issues, and (3) quantifying and evaluating the contribution made by the decision packages toward satisfying the planning issue goals.

Zero-Base Budgeting in Library Management: A Manual for Librarians (Book Review)

Zero-Base Budgeting in Library Management: A Manual for Librarians (Book Review)

Two Theories of Zero-Base Budgeting

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.).

APL - a boon to budgeting

Recent clamor over the Federal budget of the United States brought the acronyms ZBB ( Z ero B ased B udgeting) and POM ( P rogram O bjective M emorandum) into the spotlight again. The two APL financial applications discussed in this paper illustrate the difference between ZBB and PPBS ( P rogramming, P lanning, and B udgeting S ystem) used to create Federal budgets. These applications also discuss the differences between a budget that must be cut and monitored to keep that cut and one that may be increased. The APL applications show how APL, through the assiduous selection of utilities, raw code, graphics, and “off the shelf” software is able to reduce programming time, produce professional looking reports, and prepare for Congressional briefings.

Zero Base Budgeting: The Manager's Budget

This article offers an assessment of zero‐base budgeting (ZBB) derived from a field study conducted by the Urban Institute and supported by the National Science Foundation. Four cities and four states participated in the study, and several hundred public officials were interviewed.

Approaches to achieving cost effectiveness

The various ways in which the term cost effective is used are considered. It is argued that any cost effectiveness study must start with an attempt to define objectives and ways in which the degree of attainment can be measured. Then various ways of establishing the relative importance of objectives and methods of allocating resources are considered and compared. It is concluded that although techniques such as cost benefit analysis, multiattribute utility theory and goal programming have desirable conceptual qualities, it is unlikely that they will find widespread use in business and industry. Relatively unsophisticated methods such as zero-base budgeting could be used more extensively to good effect.

Zero-Base Budgeting for Libraries: A Second Look

Zero-Base Budgeting for Libraries: A Second Look

Designing a Budgeting System with Planned Confusion

Contemporary accounting literature has debated the merits and defects of both the traditional budgeting process and new challenger zero-base budgeting on the premise that managers should choose one or the other, but not both simultaneously. Recent developments in organization theory suggest that such a choice may be incompatible with the design strategy necessary for organizations experiencing a dynamic and uncertain environment. The author advocates the design of budgeting systems with planned confusion, where traditional budgeting, as a stabilizing process, coexists with zero-base budgeting, as a destabilizing process.

A zero-base approach to medical school planning and budgeting.

The University of Michigan Medical School has concluded that the traditional budgeting process used by it and other academic institutions fails to discriminate adequately among programs, particularly in times of level or declining resources, and that this failure could result in mediocrity. As a result, the school decided to develop a new system for managing resources and chose to explore an approach that utilizes the principles of zero-base budgeting. An important reason for selecting this technique was its requirement that managers plan, evaluate, and set priorities for all programs, existing as well as new. After a feasibility study that produced encouraging results, a test implementation of the newly developed system was carried out in all six of the school's basic science departments and in two clinical departments. While some difficulties were encountered, including those normally associated with the introduction of a new and complex system, the results of the test implementation were encouraging, and the process is undergoing further development to broaden its application in the clinical departments.

Zero-base budgeting— A technique for planned organizational decline

Many parts of the public sector in Britain are entering a period of cut-back and organizational decline. Current budgetary systems fail to allocate limited resources effectively. The article exposes the defects of incremental budgeting and suggests that Zero-base Budgeting could offer an effective management control system.

Variable-Base Budgeting for R&D

An issue of theoretical and practical importance to R&D managers is the proper allocation of an organization's resources between the periodic selection and budgeting of R&D projects and the implementation of these projects. One possibility is to consider previous allocations as an established base and to restrict the attention of R&D managers to an examination of any subsequent deviations from the base. The advantage of this strategy, often called incremental budgeting, is that it focuses managerial and analytical efforts on a few current decisions. A second possibility, called zero-base budgeting, is to ignore previous allocations and to reexamine all feasible alternatives at the start of each budget cycle. This paper presents three models, a static model and two dynamic models, in which incremental and zero-base allocation procedures are viewed as extremes between which there may be a point of diminishing returns. The models are risk/return models in which a total budget is allocated between the budgeting effort, which reduces risk, and the budgeted activities, which increase expected return. The budget for each activity during each time stage is partitioned into two components—a base and an increment. The expected return for each activity is a concave increasing function of its budget, and the risk depends quadratically on the base and in a geometrically decreasing fashion, on the bases in previous stages. The cost of evaluation is proportional to the increment, and the total cost of all activities, when added to the budgets for the activities, cannot exceed a fixed total budget. Zero-base budgeting means setting the base to zero so that the budget equals the increment plus the cost of evaluation. It is shown that a policy of zero-base budgeting during all time stages is nonoptimal, but an instance of zero-base budgeting during a single stage may be optimal.

Selective Sequential Zero-Base Budgeting Procedures Based on Total Factor Productivity Indicators

The authors' purpose in this paper is to develop productivity-based sequential budgeting procedures designed to expedite identification of major problem areas in bugetary performance, as well as to reduce the costs associated with comprehensive zero-base analyses. The concept of total factor productivity is reviewed and its relations to ordinary and zero-based budgeting are discussed in detail. An outline for a selective sequential analysis based on monitoring of three key indicators of (a) implicitly budgeted total factor productivity; (b) revenue growth; and (c) profitability; is suggested. It is argued that this approach is instrumental in promoting a more systematic performance analysis, which is capable of revealing hidden efficiency shortfalls and is potentially cost and time saving. Additionally, this type of productivity-based budgeting is shown (via use of an actual application) to provide all the informational inputs for a full-fledged analysis of expected budgetary distribution of productivity gains among various categories of employees, shareholders and customers.

Zero-Base Budgeting in Local Government: Attempts to Implement Administrative Reform, by Keith J. Mueller. Washington: University Press of America, 1981. Paper, $16.25

Zero-Base Budgeting in Local Government: Attempts to Implement Administrative Reform, by Keith J. Mueller. Washington: University Press of America, 1981. Paper, $16.25

Goal Setting and Performance Assessment in Municipal Budgeting

O ver the past 30 years there has been a series of attempts to make federal policy formulation more rational and the delivery of public services more efficient. The budgetary process has been the vehicle for many of these reform efforts because of its routine and recurring nature, and more importantly, because of its firmly established timetable.' Thus, the 1950s brought performance and an emphasis on measuring governmental output and comparing it to the amount of resources devoted to its production. This was succeeded by a very ambitious undertaking, the Planning-Programming-Budgeting System (PPBS), in the 1960s.2 Following abandonment of PPBS in the early 1970s, the Nixon Administration attempted, without success, to implement Management-by-Objectives (MBO) in the federal government.3 More recently, Jimmy Carter brought zero base budgeting (ZBB) to Washington after having experimented with it in Georgia state government.4

Health Care Budgeting

What purpose do budgetary tools, such as zero-base budgeting, break-down budgeting, net budget, program budget, and multi-year budget serve? Are they methods whereby planners and administrators int ...