As the acting finance director of Big Time State University Athletics, you have
been asked your recommendations regarding the conversion from the current budgeting
system, incremental budgeting, to one of the following systems:
a) Program Planning Budgeting System
b) Zero-based budgeting
c) Modified zero-based budgeting
Briefly describe your current system, the proposed systems, and which one you are
recommending? Why are you recommending that budgeting system?
Incremental Budgeting
The trends in sales and expenditure are assumed to continue in the same pattern and the
variances are justified by past years based on the baseline assumption that it will be
automatically approved. It’s also known as the historical or traditional approach to budgeting.
The forecasts are prepared using the previous records or the actual figures as the basis then the
incremental amounts expected to change are added to the new budget. The major benefit is that
the model operates under predictable and stable system. The incremental system is easy to
understand and operate. The impact of change can be noted earlier and the co-ordination the
various forecasts can be easily achieved. However its major limitation is that there is assumption
that activities and other working systems will continue working normally. It also does not
Financial Aspects of Sport Essay – Budgeting 2
encourage innovation and managers are not given incentives to work harder. The model does not
promote efficiencies as managers are not challenged to improve their status quo.
Program Planning Budgeting System
Program Planning Budgeting system (PPBS) refers to a management tool that is utilized to
provide advanced analytical basis for efficient decision-making and implementing the decisions
that are in operation. The following are the five basic components of PPBS; a) The program
structure – a classification of alternatives that are open for achievement of its objective b) a
detailed program that has been approved complete with resource inputs and outputs that extends
to future forecasts c) a decision making structure that establishes the rules and functions for
PPBS d) an analytical structure for gauging effectiveness and selecting alternatives 5)
management information system that will supply the needed data for system implementation.
Planning involves identification of the objectives, criteria development, needs and goals
determination. The planning process targets the improvement of the communication system and
the internal management systems that guide the process of decision making. The factors that may
affect the PPBS include taxes, population projections and management of other resources.
The program structure targets the achievement of planned objectives. PPBS emphasizes the
identification and development of objectives. (Leslie, 2006)
Zero Based Budgeting
Zero Based Budgeting requires the justification of all the activities on the basis of individual
cost-benefit analysis and assumes that neither commitments nor balance exists during its
commencement period. ZBB ranks all its activities according to priority and it provides a logical
Financial Aspects of Sport Essay – Budgeting
3
and systematic basis for all resource allocation. The ZBB demands that every line item appearing
in the budget must be approved not changes only. When the items in the budget are being
reviewed the previous year’s expenditure is never referred to. ZBB demands thorough
revaluation of all the requests beginning from the zero based. ZBB also refers to task
identification and funding to completion independently from the current resources. (Schick &
Hatry, 1982)
The benefits of ZBB are that it utilizes resources efficiently and it’s based on real needs rather
than history. It compels managers to find ways of cutting down costs improve the operations of
projects. ZBB systems assist in detecting inflated budgets and also provide motivation by
increasing responsibilities in decision making and also in communication systems. It also
encourages outsourcing and discourages wasteful activities. (Lynch, 1990)
The major short comings for ZBB are that its time consuming than the incremental budgeting
and the justification of each line item in the budget may be impractical in some instances. It
requires more training than the incremental budgeting as it’s more complex. It may require a lot
of back up information in very large companies which may be overwhelming.
Modified Zero Based Budgeting
Modified Zero Based Budgeting (MZBB) is also known as target based budgeting (TBB) and it
was originally adapted from Zero Based Budgeting. It recognizes that little analysis actually
occurs at the zero level and most decisions on the budget are carried out at the margins. Modified
Zero Based Budgets concentrates on gathering information from the target level where funding
commences. Each unit which has been decided upon is given a specified target to spend and its
Financial Aspects of Sport Essay – Budgeting 4
budget is then expected to match its expenditure. The unit can also submit requests that have
been decided upon and which may even be higher than the target provided they are decision
package requests. TBB does not re-examine zero base spending. It concentrates on the target
budgets and the decision packages that are mostly formed for extra or additional spending.
Under TBB, departments are requested to submit decision packages that cannot fit within their
respective target spending and which may refer to existing or new services. These decision
packages are mostly prioritized by a set of policies and organizations wide goals that are
distributed and supervised by the central management. The central authorities examine and
decide the decision packages to fund and or not to fund. (Rubin, 1991) The targets are assigned
according to the base percentage. These targets may be tailored according to the needs of the
decision packages or they may be applied similarly across the board and individualized to the
needs of each department in consideration to the supplemental projects and the urgent needs that
didn’t fit in the target. (Draper & Pitsvada, 1981) However, targets that are tailored to the needs
of each department, then individualized attention is needed to calculate its target amount. In
some instances, there will be need for different targets for capital and other operating expenses.
(Kaplan, Robert & Bruns, 1987)
The major advantages of Modified Zero Based Budgeting are a) It provides better and advance
or earlier direction to the team leaders or managers on the basics of budget design and requests.
The mangers have the targets for the budgets and also the order of priorities b) Modified Zero
Based Budgeting allows greater rationality to the target cut back decisions that the incremental
budgeting by the introduction of the decision package, its creation, selection and eventual
ranking. c) Modified Zero Based Budgeting is reliable during good and lean times as the targets
can be easily during recessions or if a particular need arises. The managers have more autonomy
Financial Aspects of Sport Essay – Budgeting
5
on how to deliver the services and as its priorities are set on the margins, higher priority activities
may easily be substituted with lower priority activities.
The major disadvantage is that Modified Zero Based Budgeting limits the options for decision
makers to reduce the budget than ZBB. Also Modified Zero Based Budgeting favors departments
by allowing them opportunities for favored programs through the decision packages. Under ZBB
all budgetary allocations must be ranked including the basic services.
I recommend the Modified Zero Based Budgeting as it seeks to allow greater rationality to the
target cut back decisions than the incremental budgeting by the introduction of the decision
package, its creation, selection and eventual ranking. The managers have more autonomy on how
to deliver the services and as its priorities are set on the margins, higher priority activities may
easily be substituted with lower priority activities.
References
Draper, F. & Pitsvada, B. (1981) “ZBB-Looking Back after Ten Years” Public Administration
Review, Vol. 41, No. 1, January.
Kaplan, Robert S. and Bruns, W. (1987) Accounting and Management: A Field Study
Perspective,
Harvard Business School Press.
Lynch, T. D. (1990) Public Budgeting in America, Prentice Hall, 3rd Edition, 52.
Leslie, P. (2006) Beyond Policy Analysis: Public Issue Management in Turbulent Times, 3rd ed.
Toronto: Nelson Education.
Schick, A. & Hatry, H. (1982) “Zero Base Budgeting: The Manager’s Budget.” Public
Budgeting & Finance Volume 2, Issue 1, pages 72–87, arch 1982.
Financial Aspects of Sport Essay – Budgeting 6
Rubin, I.S. (1991) “Budgeting for Our Times: Target Base Budgeting.” Public Budgeting and
Finance. Fall 1991. Pg. 5 -14.
