## zero based budgeting (ZBB)

(From Wikipedia, ) is an approach to planning and decision-making which reverses the working process of Zero-based budgeting budgeting traditional budgeting. In traditional incremental budgeting (Historic Budgeting), departmental managers justify only variances versus past years, based on the assumption that the "baseline" is automatically approved. By contrast, in zero-based budgeting, every line item of the budget must be approved, rather than only changes. During the review process, no reference is made to the previous level of expenditure. Zero-based budgeting requires the budget request be re-evaluated thoroughly, starting from the zero-base. This process is independent of whether the total budget or specific line items are increasing or decreasing. The term "zero-based budgeting" is sometimes used in personal finance to describe "zero-sum budgeting", the practice of budgeting every unit of income received, and then adjusting some part of the budget downward for every other part that needs to be adjusted upward. 7 Zero based budgeting also refers to the identification of a task or tasks and then funding resources to complete the task independent of current resourcing.

### Advantages

- 1. Efficient allocation of resources, as it is based on needs and benefits rather than history.
- 2. Drives managers to find cost effective ways to improve operations.
- 3. Detects inflated budgets.
- 4. Increases staff motivation by providing greater initiative and responsibility in decision-making.
- 5. Increases communication and coordination within the organization.
- 6. Identifies and eliminates wasteful and obsolete operations.
- 7. Identifies opportunities for outsourcing.
- 8. Forces cost centers to identify their mission and their relationship to overall goals.
- 9. Helps in identifying areas of wasteful expenditure, and if desired, can also be used for suggesting alternative courses of action.

### Disadvantages

- 1. More time-consuming than incremental budgeting.
- 2. Justifying every line item can be problematic for departments with intangible outputs.
- 3. Requires specific training, due to increased complexity vs. incremental budgeting.
- 4. In a large organization, the amount of information backing up the budgeting process may be overwhelming.

### Use in the public sector

#### Background

Zero Base Budgeting (ZBB) in the public sector and the private sector are very different processes, and this must be understood when implementing a ZBB process in the public sector. 'The use of ZBB in the private sector has been limited primarily to administrative overhead activities (i.e. administrative expenses needed to maintain the organization…)'.For example, Peter Phyrr used ZBB successfully at Texas Instruments in the 1960s and authored an influential 1970 article in Harvard Business Review. In 1973, President Jimmy Carter, while governor of Georgia, contracted with Phyrr to implement a ZBB system for the State of Georgia executive budget process. President Carter later required the adoption of ZBB by the federal government during the late 1970s. 'Zero -Base Budgeting (ZBB) was an executive branch budget formulation process introduced into the federal government in 1977. Its main focus was on optimizing accomplishments available at alternative budgetary levels. Under ZBB