Research Reports from the Department of Operations
Document Type
Report
Publication Date
2-1-1980
Abstract
This paper presents a comprehensive evaluation of the strengths and weaknesses of the Zero-Base Budgeting (ZBB) process during the initial year of its implementation in the Federal Government. The evaluation includes ten Departments and six agencies of the Federal Government representing 74 percent of the total budget authority of $60 billion dollars. It is based on the information received in responses from federal agencies to the Office of Management and Budget (OMB) Bulletin 78-1. Eleven major criteria were formulated for use in evaluating the applicability of the ZBB process and its performance in the individual agencies. The eleven criteria were obtained as result of: (a) statements of principal objectives for ZBB in OMB Bulletin 77-9 (25), (b) criteria used in evaluating the appropriateness of ZBB in the Federal Reserve System (15), (c) criteria developed in evaluations of industrial and governmental uses of ZBB (7), (10), and (d) a brief review of the budgeting literature (5), (17), (24). A scoring model was used to determine the effectiveness of the ZBB process within each agency, as well as across agencies. ZBB was perceived by federal agencies as an effective tool for use in the allocation of limited resources. The following aspects of ZBB were ranked in the order in which they yield the greatest benefits in producing effective budgets: (a) priority ranking of agency programs, (b) participation of management in decision making, and (c) conducting trade-offs within and across programs. In most cases, the increased participation (extent and quality) resulted in the establishment of a close link with top management and an enhanced understanding of organizational objectives, priorities, and resource allocations to various programs. The use of ZBB was not intended to and did not, in fact, produce significant tangible cost savings in federal agency 1979 budgets, but did result in reallocations of resources to activities with higher priority. Most federal agencies believed that the use of ZBB required excessive expenditures of time and effort. The average paper work increase in the agencies surveyed was 229 percent and was not related to the structural variables of ZBB, such as the number of decision packages, average size of the decision unit, and agency budget. The top three ZBB performers were HEW, Department of State and DOL. DOI found ZBB to be ineffective for budgeting its programs. In general, agencies that either had a major commitment to ZBB on the part of top-level management or already possessed an adequate planning and budgeting system with a focus on objectives performed well in applying ZBB. The agencies felt that ZBB was not particularly applicable to "uncontrollable" programs and hence the time and effort spent on using ZBB in these decision units was not beneficial. The agencies faced problems in developing "minimum level" packages, and most agencies used an arbitrary percentage reduction from the current level to force uniformity across all decision units. The most often used "minimum level" was 80 percent of "current level." Use of a predefined "minimum level" may have precluded a zero-base analysis of the decision units which is the major cornerstone of ZBB. The large variability of the average size of a decision unit across agencies, the lack of correlation between the number of decision units, decision packages, and the size of the agency budget illustrate that the agencies used no common standards in formulating the decision units. Priority ranking of decision packages at the subordinate management level was usually carried out by managers using their own independent judgment. At the top agency level, most agencies used formal ranking procedures and collegial panels to produce the initial ranking of agency-wide decision packages. The difficulties agencies faced in determining priorities of the decision packages included ranking those functions/activities that were dissimilar and/or interrelated and considering those activities not having measurable outputs or distinct workload measures.
Keywords
Operations research, Zero-base budgeting, Administrative agencies--United States--Finance, Federal government--United States--Economic aspects, Resource allocation, Government spending policy--United States
Publication Title
Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 463
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Sherlekar, Virendra Sharad and Dean, Burton V., "An Evaluation of the Initial Year of Zero-Base Budgeting in the Federal Government" (1980). Research Reports from the Department of Operations. 195.
https://commons.case.edu/wsom-ops-reports/195