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• Out of date inefficient operations identified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