1) Priority Based Budgeting (PBB) is a process that aligns funding with organizational priorities by engaging managers in budgeting. It focuses resources on critical services through a zero-based analysis of current spending, identification of efficiencies, and prioritization of proposed service levels. 2) The PBB process involves managers analyzing current spending, identifying potential savings from process improvements or reduced spending, and proposing and prioritizing different service level options. Proposals are reviewed by panels that make funding decisions. 3) Once funding is decided, managers create implementation plans to deliver the agreed upon budget and changes. Department heads then summarize plans and progress is tracked to realize intended benefits. Standard tools support the entire PBB process.

1. Priority Based Budgeting
[PBB]
Overview
November 2016
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2. There’s nothing new about budgeting, but very few organisations do it well!
Budgeting often gets a bad press. It is often considered to be, an administrative burden,
insisted upon by accountants, that achieves little or no useful purpose.
Thinking about budgeting in this way misses a great opportunity to advance an organisation
towards its goals and objectives.
The budgeting process, if undertaken in the correct manner, provides an opportunity to
align funding with organisational priorities and fully engage managers and employees in the
decision making process.
To paraphrase Joseph L Bower, “all strategy is resource allocation”, i.e. budgeting.
Priority [Zero] Based Budgeting has been deployed in many organisations, over many years,
to deliver a balanced budget and resource plans that are prioritised to support the
organisations goals and objectives
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3. Resource Prioritisation
[Organisation Level]
Robust Resource Planning & Budgeting are vital components of the Strategy
process?
Objective Setting
Functional Goal Setting
Resource deployment and cost
disbursement
Resource Assignment
Strategy
Resource
Planning &
Budgeting
Financial
Control
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4. PBB is a zero / priority based resource planning process for assigning limited resources
based on objectives, risk and benefit
PBB directs scarce resources to priority activities across the organisation, focussing
maximum available resources on services and outcomes that are critical to success.
PBB is undertaken by the managers and staff who run the business. Who, as a result
develop new planning and implementation skills which are retained for future application
Highly successful deployments of PBB have been delivered across the UK public and
private sectors during the past five years.
The outcomes and feedback from organisations who have implemented PBB are positive
and consistent;
i. PBB enables an organisation to achieve its objectives within a balanced budget,
ii. The PBB process is remarkably open, honest and robust i.e. “it feels fair”
Priority Based Budgeting [PBB] has a unique track record of producing robust
resource plans and budgets
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5. Roles & Responsibilities within PBB are entirely consistent with wider roles in the
organisation
Governance Structure Roles Review Panels
Leadership Team
/ Review Panel
Function Heads
Departmental
Managers
[BSMs]
PBB Support
Team
[Drawn from
organisation]
Train
Question
Challenge
Link SMEs
Workbooks
Support
• Set objectives
• Provide guidance
• Final funding decision
• Provide direction
• Support to "BSMs“
• Link common subjects
• Review & challenge
• Analysis of current activity
• Generation of options
• Presentation of proposals
• Implementation of change
• Challenge and sharing ideas
• Resolution of linked ideas
and interdependencies
• Panels preparation and
rehearsal
Organisational
Leaders
Each BSM has a three
20 minute Review
Panel meetings
during the course of
PBB to:
– present findings
– explore
opportunities
– validate findings
and assumptions
– redirect effort
– request / receive
Panel support
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6. What does an organisational PBB project involve – an Indicative Project Plan
1. Service Definition
Analysis and Costing
2. Identify and
evaluate efficiency
improvements and
Service Level options
3. Service
Prioritisation and
selection
4. Service Design &
Implementation
Planning
5. Implementation
Project Management & Coordination
Training, support, challenge and provision of advice to BSMs
Phases
PBB workbooks [One per
Subject Area] analysing FTE
and other costs to services
Planning Guidelines
Panel Discussion
Draft Proposals – inc.
Benefits / costs of Method,
Volume and Service Level
options
Panel Discussion
Final proposals – i.e. more
detail of costs and impact
Panel Decision
Ranked list of prioritised
Service Levels
Agreed funding decision
[Drawing the Line]
Redesigned Services to
meet agreed priorities
Revised Operating Model
Implementation Plans
Implementation of all
changes required to
achieve the agreed
resource plan / budget
Outputs
Objective
Confirm resources
Define services
Set objectives and direction
Confirm Planning
Guidelines
Present improvement
opportunities
Agree structure and
content of Service Levels
Confirm direction
Approving or rejecting
proposed Method and
Volume Changes
Agreeing and scoring
proposed Service Levels
Agreed implementation
plans for all subject areas
Agreed organisational
design / configuration
Reconfiguration of in scope
Budget Subjects to meet
budget and performance
objectives.
Cross
lifecycle
activity
Panel 1
Early September
Panel 2
Mid-October
Panel 3 & Funding
End November Early February End May
Commence
ASAP
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7. Agree objectives and priorities . Confirm cost and resource baseline . Define “Budget Subjects” and managers
The PBB project is formally launched by means of half day training workshops for all managers involved.
Baseline, participants and activities
Identify and confirm:
1. current cost baseline to be included
within PBB . Normally the current
year budget or actual expenditure, if
the budget does not represent
current spending.
2. identification of all participants in the
process, i.e. Budget Subject
Managers [BSMs], who will be
responsible for developing and
ultimately owning the budgets
agreed. The total in scope budget is
allocated to Budget Managers to
establish clear responsibilities for
each cost element and type.
3. identification of the services and
outcomes in scope. These high level
services will be further developed by
BSMs during the PBB process.
Objectives and guidelines
Agree and document objectives for the
PBB exercise:-
1. Confirmation of organisational
goals and objectives, i.e. as defined
in the organisational Strategy /
Medium Term Plan
2. Quantify and agree financial
resources available for the period
covered by the budget / resource
plan [planning period]
3. Details of planned , expected or
required changes that will [or may]
impact the organisation during the
planning period. e.g. organisational
changes, reorganisation, revised
operating models.
4. Agree membership of the PBB
Review Panel. This panel will
review, challenge and ultimately
approve PBB proposals . Review
Panel typically comprises three to
five senior managers
Launch workshop
Half day briefing and training events for
all BSMs and Senior Managers. The
session will instruct the participants
how the PBB project will be
undertaken, their roles, the activities
they will undertake and the
deliverables they will be responsible
for
The session will include practical
guidance on how to complete the
various tasks required during PBB and
instruction on the forms and
spreadsheets to be used.
Following this session BSMs will be
equipped to commence the Analysis
stage of PBB.
PBB Pre-Project Phase
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8. 1. Service Definition Analysis and Costing
A structured Activity & Process Analysis in the first phase of PBB.
Completing this analysis ensures that all participants develop a clear and
consistent understanding of how resources are currently utilised within
the organisation. Activity Analysis develops and provides the structure
and baseline information that informs all later stages of PBB and enables
the Review Panel to test and explore budget proposals and changes.
Using well proven Activity Analysis tools Budget Subject
Managers quickly produce consistent and insightful
analysis of employee activity and financial expenditure
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9. 2. Identify and evaluate service improvements
Having established and quantified current services, outcomes and costs, each BSM works to develop a structured
proposal which addresses, Volume Changes. Method Changes and Service Level options.
Delivering services more efficiently and effectively
Step 1. Quantify changes in demand, i.e. Volume Changes
Demand for services may vary between years. Step 1
quantifies the impact of known or anticipated changes.
Step 2. Identify and evaluate “Method Changes”
Method Changes are efficiency improvements which will
provide the same service for a lower cost. Examples include,
improved processes , use of technology, procurement
savings and improved staff utilisation
Step 3. Identify and evaluate “ Service Levels”
Service Levels are packages of services, ranked for their
importance to customers and users. Service Levels form the
building blocks of a Priority Resource Plan. Service levels
are defined as ;
Minimum – statutory / legal requirement
Intermediate – practically deliverable Service Level, higher
cost and lower risk than Minimum,
Current – levels of Service currently provided but at lower
cost as a result of proposed Method Changes
Enhanced – Services, not currently provided but valuable
enough to be considered for additional funds.
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10. 3. Service prioritisation and selection
Purpose and benefits
Retain customer security clearance
Secure environment for staff
Minimise vandalism and theft
Protect intellectual property
Method changes (£000)
Night security cover
Daytime access control
Daytime security rounds
24hr permanent manning
Automatic gates
CCTV for boundary
Electronic monitoring
-1
-1
-1
-30
-40
-30
M.
I.
C.
E.
1
2
1
2
50
76
35
80
(£000) RiskService levels
Total proposed
Current budget
6
8
241
298
81
100
%
-1 -37
(£000)Workload Changes
Project X ends (MOD)
Purpose and benefits
Retain customer security clearance
Secure environment for staff
Minimise vandalism and theft
Protect intellectual property
Method changes (£000)
Night security cover
Daytime access control
Daytime security rounds
24hr permanent manning
Automatic gates
CCTV for boundary
Electronic monitoring
-1
-1
-1
-30
-40
-30
M.
I.
C.
E.
1
2
1
2
50
76
35
80
(£000) RiskService levels
Total proposed
Current budget
6
8
241
298
81
100
%
-1 -37
(£000)Workload Changes
Project X ends (MOD)
Example: Security
1
2
3
4
5
6
7
8
9
10
Assessment of Service LevelRank
Essential to the business - unavoidable corporate or legal requirements
Critical - unavoidable without substantial loss or damage
Very attractive, important and productive increments of service
Important - hard to see how they could be dropped
Significant benefits but could conceivably be dropped
Desirable but first to be dropped if funding curtailed
Benchmark
Marginal but first to be supported if funding available
Possible but only if much increased funding available
Doubtful - not sufficient justification at present
Unlikely ever to be funded1
2
3
4
5
6
7
8
9
10
Assessment of Service LevelRank
1
2
3
4
5
6
7
8
9
10
Assessment of Service LevelRank
Essential to the business - unavoidable corporate or legal requirements
Critical - unavoidable without substantial loss or damage
Very attractive, important and productive increments of service
Important - hard to see how they could be dropped
Significant benefits but could conceivably be dropped
Desirable but first to be dropped if funding curtailed
Benchmark
Marginal but first to be supported if funding available
Possible but only if much increased funding available
Doubtful - not sufficient justification at present
Unlikely ever to be funded
Rank
1
2
3
4
5
6
7
8
9
10
11
Rating
10.0
10.0
9.0
8.5
7.2
6.7
5.2
4.5
4.2
4.2
3.0
Level of Service
M Statutory Accounting
M E.D.I. Customers
I Salespurchase records
M Record Keeping
C Debt collection
I Large accounts
I Advice tomanagers
E Debtor management
C Full service
C All customers
E Consultancy service
Subject
Accounts
Order Proc.
Accounts
Personnel
Accounts
Order Proc.
Personnel
Accounts
Personnel
Order Proc.
Personnel
No
1
1
2
2
1
10
5
2
4
4
2
£k
50
15
76
35
35
120
72
80
98
50
51
No
1
2
4
6
7
17
22
24
28
32
34
£k
50
65
141
176
211
331
403
483
581
631
682
%
7
9
20
26
31
48
58
70
84
92
99
Increment Cumulative
Funding
Line
The ranked Service Level listing provides a prioritised list of resource
allocation opportunities. Service Levels with higher scores are assigned
resources before lower scores. Available resources will inevitably be
exhausted before all potential [including Enhanced] Service Levels have
been resourced. When this occurs, those Service Levels falling “below
the line”, i.e. not resourced, will be those that management has
assessed as less critical for success. If un-resourced Service Levels are,
upon reflection considered vital, then a re-ranking will be required to
correctly balance requirements with available resources
Each BSM completes the standard [spreadsheet based] PBB documentation,
quantifying the impacts of Volume Changes, Method Changes and
Service Level Options, for their assigned subject area
The standard forms fulfil two vital roles:
1. Provides the Review Panel with consistent information, enabling
comparison between proposals
2. Ensures that all proposals are numerically correct
The Review Panel applies a robust
scoring method to each Service
Level for each Budget Subject to
produce a ranked list of every
Service Level proposal that is both
logical and transparent.
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11. 4. Service Design & Implementation Planning
Once the final funding line has been agreed each BSM will produce an Implementation Plan for all approved
Volume, Method and Service Level Changes within their Budget Subject.
These Implementation Plans are prepared using a standard PBB Planning Template; as illustrated below.
Upon completion each BSM will submit their Implementation Plan to their Department Head for review and initial
approval
Once the Budget Subject plan has been authorised by
the Department Head , BSMs may commence
implementation
Upon completion of all SMA plans for their
Department,, each Department Head will prepare a
Department summary, using a standard Template,
that defines the key Milestones and Risks for the
implementation of all Department changes
Each Department Head will present their Department
plan summary to the Executive Team for final
approval.
Once approved the Department summary plans will
form the baseline for managing and reporting
implementation progress and benefits realisation
Department Heads will present progress and
achievement to the Executive Team every four weeks
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12. Appendix -Tools and Resources to support PBB Delivery
The PBB process is supported by standard tools and extensive documentation that has
been developed and refined through numerous successful projects.
• Generic PBB project plans and timetable
• PBB Team Member training
• Budget Subject Manager training
• PBB Activity Analysis & Proposal Workbooks, inc. completion instructions
• Service Level identification tools and techniques
• Method improvement identification tools and techniques
• Panel Member roles, responsibilities and training materials
• Ranked priority listing and selection tool
• Implementation planning templates, inc. guidelines and instructions
• Implementation “readiness assessment” tools and guidelines
• Implementation reporting templates
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