Objectives of Budgets:

1
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
  Line Item Budgeting Planning, Programming and Performance Budgeting (PPP) Zero Base Budgeting (ZBB)
Difference Accounting/ Number oriented Function oriented (Objectives) Function and priority based
Features Input budgeting Input/ Output budgeting Dynamic Input/ Output budgeting
Dealing with Ongoing Schemes Ongoing schemes taken for granted Ongoing schemes taken for Granted Every year old/ new schemes evaluated together
Objective Control cost Resource allocation, with reference to results Resource allocation, in context of prioritization
Justification of expenses Budget ceiling, approval, Appropriation Cost-benefit, performance indicators Achievements in prioritized activity 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.

4
Planning Budgeting Aspects

• 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

PLANNING
BUDGET
REVIEW
5
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?

6
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

7
Limitations of ZBB

• High costs
• More information requirements
• Takes up more time than traditional budgeting
• Attitudinal resistance from unions/Bureaucrats/Ope
  rational 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

8
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.

9
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

10
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.

11
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

12
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.

13
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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