Zero-Based Budgeting

System(ZBB)

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What is Zero Base Budgeting:

 It is a method of
budgeting in which all
expenses must be
justified for each new
period.

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 Need for ZBB:
It helps in allocating budgetary on more budgetary and allocating
resources basis as below:

 How effectively and efficiently money is being spent?

 How much should be spent? How should be budget reduced?

 How should productivity and profitability may be increased?

 How effective and efficient are the current operations?

 Should current operations be reduced to fund higher priority

items in progress?

 Flow of information to the top management for allocation of

resources?

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 Benefits of ZBB:
 Cuts budget more rationally. Efficiency & profitability improved

 Provides coherency and better coordination between planning and budgeting

 Better insight into detailed working of organization

 Better evaluation of subordinate managers by top management

 Remove duplication/multiplication of expenditure

 Manage overheads better

 Enable the top management to reallocate resources with greater flexibility

 Enable better coordination between different departments of an organization

 Provides a tremendously effective information systems

 Enable managerial analysis at all levels

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 Limitations of ZBB:

 High costs

 More information requirements

 Takes up more time than traditional budgeting

 Attitudinal resistance from unions/Bureaucrats/Operational

people, Lack of orientation/skills of prioritization

 New innovative decision packages are to be conceived,

evaluated and compared which is difficult task

 Multi-level decision making procedures are required; this is

difficult

 Information data retrieval is not necessary

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 Implementation of ZBB:

 Government of Maharashtra introduced ZBB on

16th December,1986 in each department to
"get more out of every rupee spent”.

 Implementation of ZBB was primarily internalized by each

administrative department.

 Savings effected by a department were not to be transferred to other

departments but would be given to the same department to be spent in
the priority areas.

 Steps used for effective productivity & efficiency:

- Identify ways for cost-effective functioning
- Review age old procedures
- Delegate administrative/ financial work
- Identify areas of cost recovery
- Additional resource mobilization
- Identifying items of work, which can be outsourced.

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Results/ Major Achievements of ZBB implementation:

 Additional resource mobilization, simplification of procedures

 Replacement of legislative enactments

 Revision of fees matching the cost of service

 Computerization

 Identification of surplus manpower

 Review staff norms

 Review of schemes causing savings

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 Issues faced, while implementation of ZBB:

 Defining of the objectives of the govt.

 The issue of the centralization and the decentralization of power.

 Government operations being ‘precedent’ oriented not creativity

oriented.

 The MIS in the govt. is not well organized for ZBB

implementation.

 Difficult of implementation in an ongoing scheme.

 It also leads to the problem of retrenchment.

 The ‘play safe approach’ & the resistance to change.

 ZBB has to be implemented in entirety and not piecemeal.

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 Applications of Zero Based Budgeting:
Government
 This is service sector, where overheads assume alarming
figures, ZBB can control this up to large extent
 Unique example of Georgia Government over all its 65 paid
agencies
 In India, Circulation to state governments in India by
Ministry of Finance.

Industries
 Applicable to all operations, administrative techniques and
business enterprises.
 Prioritization and justification to all capital expenditures
programme, cost reduction programmes, research
development etc.
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