Zero Based Budgeting
TRADITIONAL BUDGETS
Budgets are used to determine and control the spending necessary for a given program to operate in an efficient, effective, and economical manner.
Traditional, incremental budgeting identifies only additional increases needed for an existing budget.
In a traditional budget the previous years expenditures are reviewed and adjusted for future expectations.
Unfortunately, traditional budgeting encourages not only a ‘use it or lose it’ approach by managers, but also a ‘that is the way we’ve always done it’ mentality.
PYHRR’S INNOVATION
In the 1960’s Peter Pyhrr was an accounting manager for Texas Instruments.
Pyhrr created the concept of Zero Based Budgeting.
The purpose of Zero Based Budgeting is to review every dollar of expenditure that a program has incurred over the previous year and determine the efficacy of each of those expenditures.
Rather than rubber stamping past actions, Zero Based Budgeting requires that very expense must be justified from the bottom up every year.
With this information program managers can determine the minimal amount of spending for the program to be viable. Other program options can then be reviewed and prioritized by administrators.
CARTER ATTEMPTS
Jimmy Carter was elected Governor of Georgia in 1970. He had campaigned on the need for state government reorganization and structural reform.
Carter’s efforts included Zero Based Budgeting. Using the new budget data, Carter consolidated a number of state programs, agencies, bureaus, commissions, and boards into a few ‘super agencies’ so as to reduce duplication of efforts.
Elected President in 1976, Carter attempted to implement a Zero Based Budgeting approach to the federal level. He pushed for welfare and tax reform, and advocated targeted deregulation.
Unfortunately, inflation, oil prices, and the Iran hostage crisis derailed Carter’s efforts.
TODAY AND THE FUTURE
The downside to Zero Based Budgeting is that it’s implementation is very time consuming.
It requires a tremendous amount of information, paperwork, and labor.
Perhaps in the near future AI could be used to streamline the Zero Based Budgeting process.
The goal of maximum government program service efficiency and effectiveness are worth the effort.
That effort is even more important today as the principles of Zero Based Budgeting stand in stark contrast to the reckless, thoughtless, and extremist chainsaw approach of the second Trump administration.
Sources
https://www.mindtools.com/a5bjnuu/zero-based-budgeting
https://www.cfodive.com/news/the-problem-that-made-zero-based-budgeting-unachievable-just-got-solved/715611/
https://prospect.org/economy/2025-01-02-jimmy-carters-economic-legacy/
https://theconversation.com/zero-based-budgeting-everything-old-is-new-again-50633
https://www.georgiaencyclopedia.org/articles/government-politics/jimmy-carter/
Thanks and a tip of the hat to Warren K. Leffler for the image of President Jimmy Carter.
