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 Government’s expenses to meet new demands,
expectations, in context of utilizing scarce resources
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Evolution of Zero Base Budgeting:
Difference
Line Item
Budgeting
Planning, Programming
and Performance
Budgeting (PPP)
Zero Base Budgeting
(ZBB)
Accounting/
Number
oriented
Function oriented
(Objectives)
Function and priority
based
Input/ Output budgeting
Dynamic Input/ Output
budgeting
Ongoing schemes taken for
Granted
Every year old/ new
schemes evaluated
together
Resource allocation, with
reference to results
Resource allocation, in
context of
prioritization
Cost-benefit, performance
indicators
Achievements in
prioritized activity
areas
Features
Input budgeting
Dealing with
Ongoing
Schemes
Ongoing schemes
taken
for granted
Objective
Control cost
Justification
of
expenses
Budget ceiling,
approval,
Appropriation
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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 year’s 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.
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Planning & Budgeting
Aspects:
PLANNING
BUDGET
REVIEW
Planning
- Determination of
Goals/Policies/
Objectives
Zero Base Budgeting
Evaluation
Operational
Plan
- Identification & Evaluation -Trade off
-Operational
of all activities
between
plan
-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
of resources?
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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

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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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 PSU’s.
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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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