Its main focus was to optimize outputs available at alternative budgetary levels. As stated later by the United States Government Accountability Office (GAO), "Zero-Base Budgeting (ZBB) was an executive branch budget formulation process introduced into the federal government in 1977. President Carter later required the adoption of zero-based budgeting by the federal government during the late 1970s. Three years later, after Carter was elected President of the United States, the federal government implemented zero-base budgeting in The Government Economy and Spending Reform Act of 1976. Jimmy Carter, the then Governor of Georgia, applied the same method to the public sector while he prepared the state's 1973 fiscal budget. In the United States, Texas Instruments was the first to develop zero-based budgeting for the private sector. As a result, it may take longer for a company to allocate the necessary funding. The time and training required for zero-based budgeting may mean managerial staff do not react to sudden changes to their operations, such as shifting markets or a departmental emergency. Managers have to spend more time on budgets that they would otherwise use for other duties. Departments can have difficulties justifying their budgets, due to uncertainties of market fluctuations. It is possible for managers to present pet projects as "necessary" expenses. However, the development of the budget can take time, effort, and additional staff. ZBB may be undertaken as a "rolling process" spread over several years so that only a limited number of departments or business functions are affected each year. Communication between departments can improve by involving employees in decision-making and budget prioritization. Zero-based budgeting encourages companies to evaluate every department's funding, and their current needs rather than the momentum of the previous year's budget or previous expenditure.
Pyhrr was appointed by then- Georgia governor Jimmy Carter to manage the state's budgetary process. This enables management to allocate funds by current needs instead of historical expenditures. Under his system, costs are grouped and measured against the previous results and current expectations. Although used at least partially in both government and the private sector, there is some doubt whether ZBB has ever been utilized to its fullest extent in any organization.Īs an accounting manager for Texas Instruments, Peter Pyhrr created zero-based budgeting to help incorporate strategic objectives into the budgeting process by tying them to functional areas. However, the saving comes at the expense of a complete restructuring every budget cycle. The intended outcome is to access the efficient use of resources by determining if services can be provided at a lower cost. This budgeting method analyzes an organization's needs and costs by starting from a "zero base" (meaning no funding allocation) at the beginning of every period. It was developed by Peter Pyhrr in the 1970s.
Zero-based budgeting (ZBB) is a budgeting method that requires all expenses to be justified and approved in each new budget period, typically each year. JSTOR ( December 2020) ( Learn how and when to remove this template message).Unsourced material may be challenged and removed.įind sources: "Zero-based budgeting" – news Please help improve this article by adding citations to reliable sources. This article needs additional citations for verification.
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