Zero-sum budgeting leaves little incentive for colleges and university employees to create effective and efficient work flows
This common budgeting practice presents a "use-it-or-lose-it" gambit that makes it challenging to foster work environments that encourage efficient systems. "Every-tub-on-it's-own-bottom" may promote personal responsibility when it comes to generating revenue to support the operation, but the need to zero out the budget at the end leads to unwarranted wastefulness instead of encouraging resourcefulness and conservation that could otherwise be diverted to reservoirs of slack funds that can be put toward generating organizational innovation.
If, in the course of operating your department or unit, you fail to prove the need for resources allocated for this fiscal term by not using the full amount over the course of the year, you risk losing it in the following fiscal year. Effectively, the money you saved over the year is pooled back into the general fund and redistributed to other areas of the operation who demonstrate need. This becomes particularly painful if you are down FTE (full time equivalent) employees, you were not allowed to hire new folks, and by operating successfully for a full fiscal year down resources, you've proven you can survive without the personnel. When it comes time to allocate funds in the following year budget, it becomes entirely difficult to justify a request to retain full salary and benefits packages not fully utilized. You lose the position(s). Now what?
The unintended consequence of zero-sum budgeting establishes a deep, culturally fixed mind-set that stifles creativity and deflates the ability of players in the operation to simultaneously increasing efficiencies and effectiveness. Because any savings is not retained by your operation for developing new and inventive procedures, and quite probably lost in any forthcoming budgets to be redistributed to other areas, you become hell bent on spending all capital on whatever you can fathom before the close of the fiscal year. This leads to feeding frenzies where directors and such scurry about to spend all the budgeted monies in whatever way possible to zero out the funds, and thereby justify the next year's equivalent amounts or perhaps a small percentage increase, if you can.
If, instead, what you are suggesting - Zero Based Budgeting - is a ground-up form of budgeting - where you identify the needs, and the budget required to execute on the need to pinpoint the budget for the forthciming year, we might see the barrier reduced.
Thanks for the comment.
- Log in to post comments
Aaron -- I don't understand the definition of "zero-based budgeting," or the second paragraph of the online Summary is just not consisted with your intent.
I thought "zero-based budgeting" meant that the budgeting process started with a zero for each department for each period. From that, each unit had to prove its needs, from the ground up.
In other words, the "use it or loose it" approach uses the previous budget as a base, and, therefore, requires the unit to spend down to zero to demonstrate an apparent need for the full amount in the next period. This might be more apt to encourage wastefulness.
"Zero-base" does not mean "spend down to zero"! On the contrary, it is starting with a zero base with no reference to previous spending. It requires justification for every dollar for every expense, from the ground up.
Perhaps, we need to consider "zero-base budgeting" rather than the "previous-period based" budget planing concept.
- Log in to post comments
You need to register in order to submit a comment.