Introduction

Justificación

In many companies, the idea of reworking the company's budget from scratch,
Without taking historical information as a basis, it may seem like a very complex task. Without
embargo, for a few years now and due to changes in the economic cycle, increasingly
more frequent, that our organizations face, an increasing amount
they have decided to budget with that criterion, in order to use a more precise method
of budget preparation, called 'Zero Based Budgeting (ZBB)'.
The budget managers at the PBC review the different objectives of the
organization and expenses at the beginning of each budgeting cycle and must justify each
one to receive the funds. When applying this methodology of
budgeting is successful, the organization generates significant savings and is freed
of rigid methodologies.
The PBC is a budget preparation process that allocates funds according to
efficiency and necessity to achieve the organization's objectives instead of
consider the budget history of previous years.
Unlike traditional budget preparation, no account is
budgeted automatically. However, they can be taken into account, if not
implement correctly, the costs for the organization.
 ZERO BASE BUDGET

Concept

Zero-based budgeting is a planning and budgeting methodology that aims to

reevaluate every year all programs and expenses of an organization. Provide
detailed information on the financial resources needed to achieve the
desired outcomes, highlighting the duplication of efforts.
This zero-based budgeting process involves identifying packages
of decision and classify them according to their order of importance, through a cost analysis
benefit. Establish programs, set goals and objectives, make decisions related to the
basic policies of the organization.

Objectives of Zero-Based Budgeting

Reduce expenses without affecting priority activities, maintaining services or

minimizing the negative effects of the measure. Suppresses low activities
priority that does not affect the expected outcome of the organization. If required,
major economies, the reduction extends to medium-priority activities,
trying to minimize the negative effects of the measure.
Identify each activity and operation one hundred percent, so that each manager can evaluate.
and I analyzed the necessity of each function, as well as the alternative methods for
perform that function.
Thoroughly evaluate, for each activity manager or cost center, all operations.
to evaluate the alternatives and communicate their analysis and recommendations to the management

address, in order for them to review and examine when determining the assignments of
budget.
Identify the decision packages and classify them according to their importance.
detailing the activities or operations (decision package) that need to be added or
suppress.
Characteristics

Focus attention on the capital necessary for the programs instead of

focus on the percentage increase or decrease from the previous year.

It is a flexible and powerful tool for the state apparatus, it can simplify
budgeting procedures, help to evaluate and allocate resources
financially efficiently and effectively.

The process requires each manager to justify the requested budget

totally and in detail, check why it should be spent, helps in decision making
decisions, and to the allocation of resources.

Provide each manager with a mechanism to identify, evaluate, and communicate.

its activities and alternatives at higher levels.

Each manager must prepare a 'decision package' for each activity or

operation, which must include a cost analysis, purposes, alternatives,
evaluation of results, consequences of the non-adoption of the package and
benefits obtained.

The various activities that must be carried out are analyzed in detail.
to implement the programs, the option is selected that allows obtaining the
desired results.

A comparative cost-benefit study is conducted between the different

existing alternatives, to fulfill the activities.

This method can be adapted to any organization, both for the industry
like for the government.
A broad definition of Zero Base Budgeting

We can say that Zero-Based Budgeting is a planning methodology and

budget that seeks to reevaluate every year all programs and expenses of a
organization, whether public or private. One of its foundations is that it provides
detailed information about the economic resources needed to achieve the
proposed results, thus avoiding, among other things, the duplication of efforts.
The process of creating the Zero-Based Budget consists of identifying a set
of packages that are called decision-making, and classify them according to their order of importance

through a cost-benefit analysis. It is similar to any type of planning in

as for establishing programs, setting goals and objectives, and making decisions regarding
the basic policies of the organization. However, it presents a series of
characteristics mentioned below:

Primarily focuses attention on the capital necessary for the

programs, instead of being based on the percentage of increase or decrease of the
last year.

It can become a flexible and powerful tool for the state apparatus, already
that simplifies budgeting procedures and helps to evaluate and
assign financial resources efficiently and effectively.

From the perspective of the private initiative, the process requires that each
manager justify the requested budget completely and in detail, check for
what should be spent, and with it help in decision making.

That is why each manager must prepare a 'decision package' for each
activity or operation, which must include a cost analysis, purposes,
alternatives, evaluation of results, forecasts and consequences of non
adoption of the package and benefits obtained.

This is how the different activities that need to be carried out are analyzed in detail.
to implement the programs, and therefore the option is selected that allows
obtain the desired results.

Subsequently, a cost-benefit comparative study is conducted between the

different alternatives or existing options to fulfill the activities.
On the other hand, Zero Base Budgeting, being a proven and tested method, makes
that its application and adaptation can be carried out in any organization, both of
the private initiative as well as the government.

The objectives of the Zero Based Budgeting allow for reducing expenses without affecting
priority activities, maintaining services or minimizing possible effects
negatives of its implementation. They eliminate low-priority activities that
do not affect the expected outcome of the organization. In case of needing savings
For adults, the reduction extends to activities of average priority, trying to
minimize the negative effects of the measure. At the same time, it aims to identify
each activity and operation in its entirety, so that each manager can evaluate and analyze the
need for each function, as well as alternative methods to perform it or
develop it.
The fact of thoroughly evaluating, for each activity manager or cost center, all the
operations to assess the alternatives, as well as to communicate and convey their analysis and
recommendations to the senior management, so that they review and examine it
Determining the budget allocations already makes the exercise very valuable.
It is necessary to identify the decision packages and classify them according to their
importance, detailing the activities or operations (decision package) that have been
to add or remove.
These packages are reflected in a document that identifies and describes a function or
a specific activity, in such a way that the management or the higher authorities can
evaluate it and classify it in comparison with other activities that compete for the
the same resources, and decide whether to approve it or not, including the consequences of not executing

that function, that is, weighing the opportunity cost.

This is why a detailed analysis of the functions is needed, including
alternatives, cost trends, and recommendations that indicate the intensity and
effectiveness of the work to decide on its approval or rejection.
These decision packages will be evaluated and classified in order of importance by
a systematic analysis.
A decision package is a document in which the characteristics are expressed.
relevant to the planning of the activities and the resources requested to carry them out
cabo. At the time of establishing a decision package, data such as the
next:

How many units of the organizational chart represent decision-making centers and must

to prepare budgets, this in the sense of considering the experience in the

private initiative as 'cost centers', with the idea of implementing it in the
government sector.

In what way will these budgets be consolidated to form a budget?

consolidated, as well as the consequences it entails.

It is essential to know what the workload is and how many elements there are.
they need, with the aim of analyzing, evaluating, judging, and choosing the different
alternatives that each of the decision-making units will surely entail.

It is crucial to identify the area or the functions of impact, as well as the

assignment of responsibilities; that is, who could be the responsible parties
to authorize these packages

On the other hand, when designing decision packages, they can be focused on the
following aspects:

The organizational units, the people involved, and eventually

affected, plans, programs and projects, services, cost reduction,
improvement of income.

Zero-Based Budgeting is a planning process that seeks to justify the

expenditures according to the activities that are carried out, the objectives they serve
those activities and the results that are achieved.
 If in a review it is found that a unit, a person, or a group of
people have few rational arguments to justify the
expenditures, the organization may consider the option of not allocating
budget, that is, allocate a budget equal to zero.

Another important aspect is the alternatives; each objective can be achieved by

different alternatives (the same can be said for the goals). Each alternative
it actually represents a decision package. The alternatives can be evaluated from
two ways: first, in a way that two different projects achieve the same
activity at the same level; and second, the establishment of different levels through
of those who set objectives.
This process of formulating alternatives is, perhaps, one of the great successes that,
Having acceptance and success will constitute one of the great advances in management.
Perhaps the core part lies in the fact that it is possible to make a series of
combinations and to see a broader perspective with different alternatives
about which to decide.

The opportunity cost at the time of package selection

Of primordial importance for the success of the budget election is the level of
fund allocation.
A first obstacle that arises is to establish a defined criterion for
choose the decision packages. This is known in some cases as the scheme of
priorities (every company has priorities within a specific area or priorities
due to the company's own objectives). For example, when the
the company is in unfavorable conditions, it could give priority to all
those planned activities whose objective is to achieve financial equilibrium.

In addition to the previous ones, the other issue that arises regarding priorities is
presents when designating the officials who will be responsible for choosing the packages of
decision and allocate the budget. Traditionally, this task has been entrusted to a
committee, since the dimension of zero-based budgeting does not allow for a single person
I reviewed it.
In addition to the above, the selection of decision packages poses another problem.
additional; under the assumption that the body responsible for making the
ideal decisions, there is still a need to have some mechanism to choose those
most appropriate packages.
However, the establishment of priorities is generally a criterion for choice;
the establishment of this type of priorities is to some extent subjective, there is no
a precise scale, similar to a ruler or something like that.

The decision can be made based on the establishment of three criteria:

The moment when decision packages have an unavoidable priority and

the package meets the minimum requirements; therefore, it has a high
probability of being included in the funding allocation program.

2. Establish a medium or moderate range; that is, they would be those cases in which
the amount of available funds would be taken into account to allocate the
necessary resources.

3. The last would refer to and would be those where the packages are judged as those
which have a minimum priority; that is, they are the ones that would only be chosen in
case of a true bonanza.

Due to the above, in the event that two or more persons or entities must
to judge the packages, one will have to think of a system that serves to achieve a decision
definitive. In some cases, voting is advisable.

Once the packages are chosen, only the budget consolidation remains to be carried out.
it becomes a calculation operation. The results obtained in the first
Consolidation may not be as desired and a review, or more, is required to adjust.
figures based on adding and removing packages to reach the approved budget figure.
The method of implementation, before and now

As expressed, with the Consolidation stage, the development of the

Zero-Based Budgeting. However, it should be considered that the problems of a character
cuantitativo no son los mismos en una empresa grande que en una chica o mediana. Lo
the same happens in the public sector: the dimensions are not the same in one
governmental dependency that exists in an entity or administrative body
distracted, depending on the criteria, therefore, people do not behave the same
in each one.
That is to say, each company or entity must diagnose its current state. Such diagnosis
understand not only the economic level and the financial level, but also that of their
human resources and the advancement of their administrative technology.
The company or entity must implement traditional budget systems before
to think of such a complex system for decision-making, such as the Budget
Zero Base.
Para su implementación se debe hacer énfasis en la capacitación de los recursos
humans. It is timely to train all those individuals in the organization to the
which will be required to prepare plans, programs, and alternatives, as well as the
valuation and quantification of the same.
Another step in the implementation is the selection of alternatives, the search for plans and
systems to achieve a common goal.
An additional problem that arises in the implementation is the attitude of rejection towards
innovation. Staff may think they are in danger, especially if some of the
activities carried out are not solidly grounded in the new plan.
Within what has been mentioned regarding the problems, it can also arise that
case in which those responsible for budgeting inflate the figures to their benefit.
One of the problems mentioned by many authors about Zero-Based Budgeting
it is implemented in very large companies, since in these cases the system of
planning can lead to such a dimension of decision-making packages that it is materially
impossible to establish well-defined criteria and an adequate and rapid methodology that
allow to have the best decision packages in a timely manner.
Challenges in the application of the PBC:

PBC represents an opportunity for organizations to reduce costs and improve

qualitative and quantitative aspects of operations. However, prioritize
needs can be seen as a threat to some managers, at the same time
which can be problematic for areas with intangible results. The process,
compared to traditional budgeting, it is more expensive and complex, but in
In many cases, the benefits that can be obtained through its application make it so that
it is worth trying. For some organizations that depend on high levels of
service to maintain your brands and higher prices, the application of the PBC could
negatively affect the customer experience and the company's ability to
set higher or 'Premium' prices, understanding that the shift towards an approach
more restrictive budgeting can lead to a change in attitude towards the
costs. Reduce costs that are not considered 'core' to the company's operations but
which are key to the customer experience can produce an adverse result.
There are some measures that organizations can take to tackle challenges.
that presents the PBC and thus implement a successful PBC. Below is a summary of the
main challenges of PBC and how to address them.

PBC is resource-intensive

Typically, PBC requires more resources than traditional budgeting.

Those who prepare the budget must investigate and document the different expenses and their uses.
and returns, as well as the department's activities; managers must carry out.
Regular performance reviews; staff must prepare analyses and reports.
relevant. With the advancement in analytics, business tools and automation
processes, the PBC can consume less time for all involved.

Short-term thinking risk

Since the PBC starts the budgeting process from scratch and requires a
justification for each expense can encourage short-term thinking, for example,
allocating resources to those areas that can generate income or increase their
margins within the following calendar year.
Organizations should set PBC timelines with reviews.
regularities and key milestones linked to the organization's long-term vision.
Cultural change management
The transition of an organization from traditional cost-cutting to PBC involves a
significant cultural change. In general, it is difficult to change the mindset of everyone
expenses require justification. The senior management of the organization must define
tangible objectives and balance the resources invested with the benefits obtained. The
the team leading the PBC must communicate and be transparent about what is required
for the PBC to be successful.
To address these challenges and limitations, both private organizations and the
public entities can (and often do) mitigate the risks of AML by adopting a gradual approach in
its application, and initially they only apply certain components
punctual aspects of PBC (such as the linkage of the budget with objectives and its
prioritization) or only in certain areas. With this approach, we can achieve that a
organization benefits from restrictive budgeting immediately. The
methodical application of the principles of ABC can help organizations to be
more transparent, agile, and detailed with their budgets.
 Conclusions

Zero Base Budgeting represents an advanced management technique, difficult

but not impossible to accommodate in the public sector.

A detailed study of the organization is necessary to diagnose whether it is

adaptable budget.

Zero-Based Budgeting is a process of rational analysis of expenditures.

It should be prepared in such a way that everything that can be utilized is taken advantage of.

It is reported, achieving efficiency and progress in performance.

As part of the budgeting cycle, under a Zero-Based Budgeting logic,

decision packages must be made based on sufficient information from
impact evaluations, in order to know the economic and social profitability
of the budget programs.

A results-based budget must take into account the portfolio of programs and
investment projects. Each investment program or project subject to expenditure
the public must include an assessment that shows its economic profitability, with
information about its life cycle (pre-investment, investment, and operation), in order to
that it can be compared to what was planned and what was done, and in this way avoid
reasons for a project's failures.

Based on the above and with clear evidence, they can be eliminated.
those programs and actions that are duplicated, are regressive or do not meet
the purposes for which they were created; or, where appropriate, strengthen or merge
those programs and actions that achieve real impacts on development
human, measured in terms of people's well-being.
 Bibliography

Center for the Study of Public Finances (c e f p) (2005). "Zero-Based Budgeting."

Compilation of selected notes. Mexico: Chamber of Deputies/H. Congress of
Union/Centre for Financial Studies
Public c e f p/023/2005. Colmenares Páramo, D. R. (May 2015). 'Reflections
about the Zero Base Budget. Mexico.
Patiño, D. and Flores, Z. (March 2015). "Commitments would complicate the base budget"
zero.
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Annexes