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0 Base Budgeting

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Information about 0 Base Budgeting

Published on October 19, 2007

Author: monikakansal

Source: slideshare.net

Description

this presentation shows what ZBB is,It is an innovative way of creating cognizance and an ever lasting impression of the ZBB. You want to forget it, bet, you cannot---- wanna give it a try
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How much budget allocation request should I make? Base Budgeting

• Starts from scratch or zero • Not on the basis of trends or historical levels of expenditures.

Brain child of • Peter Phyrr of Texas instruments

Mr. Jimmy carter • President of U.S.A. tried ZBB in federal budgeting as a means of controlling state expenditures.

• Budget for the next period is zero. • Justify every project, activity, process or function

manager is to justify • Why money should be spent at all ? • Sets asides all previous year’s inefficiencies and extravagancies • Which activities we shall give top most priority ?

Cost benefit analysis • Of each of the activity under his control. • Need to recognize less essential activities • Curtail or eliminate • Made into profitable activities

Activities shall be selected in the order of their importance. 4 3 2 1

Steps in the process of ZBB. • Develop an operational plan or decision package. C O R

What is a decision package • A) It is to identify and describe a particular activity evaluating and ranking the activity against each activity • B) deciding to accept or reject or amend the activity

Each work package shows • Costs • Returns • Purpose • Expected results • Alternatives available • Consequences if activity is not performed or reduced

These packages • can be mutually exclusive • Incremental packages

Mutually exclusive means • Each contain an alternative way of doing the same job.

Incremental packages • Define different levels of efforts

Work package no 1. • Setting up out-door dispensary with equipments and medicines but no medical staff • 0+ Rs. 50,000= Rs. 50,000

Work package no. 2 • Providing minimum staff • With budgeted incremental costs Rs. 30,000

Work package no.3 • Purchase of more equipments and medicines and providing more staff in the 2nd phase • Rs.80,000+1,20,000 = Rs.200,000

Work package no. 4 Special equipments and specialists staff and 3 beds for emergency Rs. 2,00,000+2,00,000=Rs. 400,000

Work package no.5 • Establishment of 30 bedded hospital • Rs. 400,000+ 16,00,000= Rs. 20,00,000

Work package Package target Incremental Total cost no. costs Rs. Rs. 1 Out door 50,000 50,000 dispensary 2 Minimum staff 30,000 80,000 3 More 120,000 2,00,000 equipments and staff 4 3 beds for 200,000 4,00,000 emergency 5 30 bedded 16,00,000 20,00,000 hospital

Step 2. • Ranking of decision packages based on CBA

Step 3 • Allotment of funds based on pyramid ranking system

Advantages of ZBB • Out of date inefficient operations identified

• Allows managers to quickly respond to changes in external environment

• It promotes questioning and challenging attitude

• CBA of each activity costs BENEFITS

• Psychological impact “pay his way”

Defects of ZBB • Increased paper work

• Cost of preparing many packages • Subjective ranking • Resistance by bad managers • More emphasis on short term benefits • Continual updating of each existing package and new packages • Qualitative benefits ignored

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