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, for no other reason than the activity has been carrying on at a similar level for a number of years.
ZBB can be applied usefully to budget heads such as repairs, maintenance or equipment costs. The traditional incremental approach often pays scant attention to these heads, perhaps at best looking at trends over 2 or 3 years, and very often simply taking “last year plus x%”. But it is often possible for service priorities to be proposed, discussed and established without reference to previous years. If proposals for resource allocations are presented with options for service level and predicted outcome, funds can then be allocated on the basis of best value for money. ZBB is there to question set assumptions, and to provide a tool for systematically reviewing, reprioritising, and perhaps withdrawing from long term activities that no longer align properly with an organisation’s objectives. Successful use of ZBB relies upon the effective involvement of all executive managers. Like all good budgeting processes, it requires that the organisation’s objectives are determined and clearly stated. Where it differs from the traditional route, and adds value to the budget process is in the next stage, where different ways of achieving those objectives are explored and assessed, so that the resources associated with the preferred option can be actively justified.
done” question, rather than “should it be done”. If such a decision could not be made, the activity is likely to be part of a larger decision package. This milestone can be broken down further: Stage 1 – Defining the Scope of ZBB Decide which parts of the organisation are to be assessed using ZBB. For complex, multi-function organisations, it may be helpful to pilot the approach in a few areas where activities are closely aligned to organisational structure. It is essential that the activities to be assessed have clearly defined objectives, and wherever possible, measurable outputs and outcomes. Stage 2 –...