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Zero Hero - Savings With Zero Based Budgeting
Zero Hero - Savings With Zero Based Budgeting
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Zero hero savings with zero based budgeting
Stephen Fitzgerald considers how zero based budgeting might be applied in a
local authority context.
In its recent report The Financial Sustainability of Local Authorities 2014, the
National Audit Office tells us that central support for local government has reduced
by a 37% reduction in funding between 2010/11 to 2015/16.
This is at a time when spending pressures are increasing. For example the increase
in childrens social care spending in England as a whole over the four year period
from 2010/11 is 7%. There is no other sector in British corporate life that has faced a
financial and operational challenge of this magnitude.
Nevertheless, local government has improved customer satisfaction ratings, built up
reserves and kept local taxes down. However, things are becoming tough and
even if one does not believe the Cassandras that talk of imminent collapse in service
and financial health there is little doubt that local government faces a challenge in
budget management that surpasses that of most other organisations.
Appropriately resourced services
The days of tax and spend are over and the question is how, in the post
transformational age, remodelled services can continue to be appropriately
resourced. It is against this challenge that local authorities are examining their
budget processes to see how they can continue to deliver for the long term.
One approach born in the public sector is zero based budgeting (ZBB). Going back
to the last century it was developed to provide an approach in the US public sector
that was an alternative to taking the replication of past spending with incremental
changes as a way of building budgets.
Reversal of traditional approach
ZBB is an approach to planning and decision-making that reverses the working
process of traditional budgeting. In zero-based budgeting, every line item of the
budget must be scrutinised, evaluated and driven by objective data. Its key elements
are that it does not use historical cost information; involves a comprehensive
analysis of each service area; uses objective performance measures; engages
managers at all levels in budget development and aims to deliver an efficient
allocation of resources.
In setting a budget the organisation needs to ask a number of searching questions:
do the benefits to be gained from the activity at least match the costs?