Zero-Based Budgeting Starts with a Blank Page

ZERO Based Budgeting Process

In management accounting, when a budget is prepared from scratch with its base as zero, it is called Zero-Based Budgeting.  It promises to move organizations away from incremental budgeting, where last year’s budget is the starting point. Instead, the starting point becomes zero, with the implication that past patterns of spending are no longer taken as a given. For this reason alone the Owen Sound should consider moving to some form of Zero-Based Budgeting.

There are a number of Pros and Cons when considering Zero-Based Budgeting. It has been the subject of a fair amount of controversy over the years, largely due to the level of effort required annually to build the budget. A good overview of Zero-Based Budgeting from a general purpose perspective can be found at the following link:  How to Give Every Dollar a Purpose

Several public institutions have considered Zero-Based Budgeting since being first introduced in the 70s.  The City of Calgary implemented Zero-Based Budgeting a few years ago. Their experiences can be reviewed at the following links:

a.    Calgary Government Financial Officers Association Review, and

b.    The City of Calgary’s Zero-Based Program Review

In addition to the full implementation of Zero-Based Budgeting, there are partial implementation options. All of these all use a starting point of zero. Some of these are; Department Based Budgeting, Zero Line-Item Budgeting and Service Level Budgeting. Reviews of each of these modified approaches to Zero-Based Budgeting are available online.

The Zero-Based Budgeting is a process that does take up a lot of time and effort to implement.  Therefore it will initially be considered overwhelming and some will find it too challenging. However, Council needs to encourage staff to persevere.  It has been successfully implemented by municipalities and the benefits can be enormous. More importantly the return to taxpayers would be encouraging and at the very least stop the migration to other communities..