It is important to understand the definition of Zero Based. As described it assumes that the budget can be developed from first principles, with a clean sheet, as if from a new starting position. This allows for complete alignment with the objectives for the activity/service, along with freedom to decide the best possible approaches. Sometimes, in the public sector there is often a base from which the budget setting process has to begin. For example, staffing, (or staffing constraints), accommodation, location, etc.
ZBB must be put in the context of the environment and not looked at in the purist form. It does however remain a very good approach in many areas, such as a new service or aspect of a service; a new project; a new approach; and so on.
ZBB is also very useful as a “reset” to existing services and projects, particularly where they do not deliver the outputs required within a budget allocation.
Some public and nonprofit sector organisations often find themselves facing numerous constraints restricting the flexibility for budget setting that ZBB demands. An example of this is a service delivered with over 90% of expenditure being staff costs. Given that most staff will be on full time contract they become a fixed cost, resulting in ZBB only being applied 10% of the service. ZBB is not always the best method in such circumstances.
The ZBB process can be summarised as follows:
This technique of budget setting may not be the most appropriate and can generate idealistic results which are not useful if there are budget constraints. In such circumstances the first step in the process must be “set out the constraints and limitations”. This then presents the backdrop for a ZBB approach which may generate new ways of working and better use of resources.
More information on budget setting is available in our books and courses. Ensuring we provide our human capital with the information it needs is a positive investment which leads to value for money.
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