Zero-Based Budgeting: At the Heart of Public Services
ZERO BASED BUDGETING
AT THE HEART OF PUBLIC SERVICES
The 2007 Comprehensive Spending Review will include a set of zero-based reviews of baseline expenditure in Government departments, aimed at assessing their effectiveness in delivering the Government’s long-term objectives, and contributing further to the Efficiency Programme. Departments will need to identify elements of their DEL for these reviews. This note is intended to provide an introduction to the zerobased concept. Zero Based Budgeting (ZBB) is an approach to budgeting that starts from the premise that no costs or activities should be factored into the plans for the coming budget period, just because they figured in the costs or activities for the current or previous periods. Rather, everything that is to be included in the budget must be considered and justified. This initially appears to be a very resource hungry approach, and if applied in this simplistic form, would quickly fall foul of the law of diminishing returns. However, the application of practical common sense to the ZBB concept quickly identifies potential gains, and it will be seen that ZBB also aligns closely to current initiatives, including the Efficiency Agenda, and to performance measurement. ZBB is not new – it first appeared in the 1960’s – and indeed it is not surprising that dissatisfaction with a purely incremental approach to budgeting has been one of the main drivers in attempting to find budgeting models that actually serve the purposes and objectives of the organisation. In its pure form, ZBB involves the preparation of operating budgets on the assumption that the organisation is starting out afresh in the new planning period – it is as if the life of the organisation exists as a series of fixed term contracts. However, it is usually used most effectively where the activities involved are wholly or mainly discretionary in nature. But it is very easy to fall into the trap of assuming that something is non-discretionary,
AT THE HEART OF PUBLIC SERVICES
The 2007 Comprehensive Spending Review will include a set of zero-based reviews of baseline expenditure in Government departments, aimed at assessing their effectiveness in delivering the Government’s long-term objectives, and contributing further to the Efficiency Programme. Departments will need to identify elements of their DEL for these reviews. This note is intended to provide an introduction to the zerobased concept. Zero Based Budgeting (ZBB) is an approach to budgeting that starts from the premise that no costs or activities should be factored into the plans for the coming budget period, just because they figured in the costs or activities for the current or previous periods. Rather, everything that is to be included in the budget must be considered and justified. This initially appears to be a very resource hungry approach, and if applied in this simplistic form, would quickly fall foul of the law of diminishing returns. However, the application of practical common sense to the ZBB concept quickly identifies potential gains, and it will be seen that ZBB also aligns closely to current initiatives, including the Efficiency Agenda, and to performance measurement. ZBB is not new – it first appeared in the 1960’s – and indeed it is not surprising that dissatisfaction with a purely incremental approach to budgeting has been one of the main drivers in attempting to find budgeting models that actually serve the purposes and objectives of the organisation. In its pure form, ZBB involves the preparation of operating budgets on the assumption that the organisation is starting out afresh in the new planning period – it is as if the life of the organisation exists as a series of fixed term contracts. However, it is usually used most effectively where the activities involved are wholly or mainly discretionary in nature. But it is very easy to fall into the trap of assuming that something is non-discretionary,