Introduction:

Objectives of Budgets:

Administer business

Helps decision making in the

businesses and governments

Put a ceiling on expenditures, control cost of business

Provide linkage between Government's mission and the

expenses

Prioritize Governments expenses to meet new demands,

expectations, in context of utilizing scarce resources

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 Evolution of Zero Base Budgeting:

Planning, Programming
Line Item and Performance Zero Base Budgeting
Budgeting Budgeting (PPP) (ZBB)
Accounting/
Number Function oriented Function and priority
Difference oriented (Objectives) based
Dynamic Input/ Output
Features Input budgeting Input/ Output budgeting budgeting

Dealing with Ongoing schemes Every year old/ new

Ongoing taken Ongoing schemes taken for schemes evaluated
Schemes for granted Granted together
Resource allocation, in
Resource allocation, with context of
Objective Control cost reference to results prioritization
Justification Budget ceiling, Achievements in
of approval, Cost-benefit, performance prioritized activity
expenses Appropriation indicators areas

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 What is Zero Base Budgeting:

ZBB introduces Management by Objectives through

Financial Management

Each year, budget starts from scratch (hence zero base) -

without considering earlier years resource allocation.

Systematic application of marginal analysis techniques:

Evaluate current and new programs on the basis of Output,
performance, costs, utility, effectiveness, relevance, level,
scarce resources and priorities

Redefine resource allocation for activities:

- Eliminate
- Fund at reduced level
- Fund at similar level
- Fund higher level

This helps to free up resources for new programs. 3

 Planning & Budgeting
Aspects:

PLANNING BUDGET

REVIEW

Planning Zero Base Budgeting Evaluation Operational

Plan

- Determination of - Identification & Evaluation -Trade off -Operational

Goals/Policies/ of all activities between plan
Objectives -Alternatives & Costs to goals, plans
achieve plan aims & costs
-Establishment of priorities

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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 5

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

Provides coherency n 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

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Enable managerial analysis at all levels
 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. 8
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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 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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 Approach of Maharashtra Government
Progress and Constraints:

Based on following cardinal management tenets:

MBO through Financial Management

Involvement of top management

The principal of Plural Executive in Administration

ZBB application to total Governmental

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 Zero Based Budgeting in India:

ZBB was first implemented in 1979 when the government

considered its rigorous examination of its expenses.

In 1986 a order was issued by the secretary, government

of India that ZBB be applied for all its planned and non
planned expenditures including PSUs.

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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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