In establishing a budget in any type of organization, it is usual to take as a starting point the needs and levels of expenditure made in the previous year, extrapolating to the current year.
We can say that the zero base budget is: «a method that completes and links the planning, budgeting and review processes. It identifies alternative and efficient methods of using limited resources to effectively achieve selected objectives. It is a flexible approach to management that provides a reliable basis for reallocating resources by systematically reviewing and justifying funding levels and implementation of current programmes» (Peter Sarant).
Thus, we can say that zero-based budgeting is a method of budgeting in organizations, where each year begins with the preparation of a new budget. In this way, each of the organization’s departments must argue and justify all budget requests, based on its activities and objectives.
Experts in the financial field refer to the budget on a zero basis, relating it to a philosophy of justification and continuous monitoring of the organizations’ expenses and income. In this way, the projects of the different units are aligned, considering the expected benefits, the objectives and the expenses that will be incurred in carrying out all these projects.
Each of the projects, plans and activities of the units that make up the organization are evaluated and prioritized, so that all of them:
- They are duly explained and justified, and justified to the current period.
- Zero base budgets analyze how the resources will be used.
- The resources are assigned to each activity, prior prioritizing with the rest of the activities of the organization
The zero-base budget is prepared following the phases listed below:
- Identification of the short and long term objectives, both for the organizations and for the different units.
- Identification of the different ways to carry out each of the activities.
- Evaluate the activities and the different alternatives to apply the funds.
- Establish the funds and priorities for each of the activities.
Among the advantages of carrying out this type of budgeting is
- Accuracy. This type of organization evaluates all units, their activity and the use of the money allocated to them.
- Efficiency. A real mechanism of prioritization of activities is established and thus it is possible to analyze the way in which the activity adjusts to the dynamics and goals of the organization.
- Elimination of superfluous activities. Through this system and its prioritization, the activities that contribute less to the organization are eliminated.
- Communication and equipment. This style of organization produces improvements in the communication of the teams, since all
its members are interested in participating and developing the activities. If a budget item is not allocated, it cannot be carried out.
It is important to establish the system of prioritization, for this purpose the different activities are usually divided into: high, medium and low priority.
On the side of the disadvantages can be found: the cost in time that it requires, it requires more preparation and training of people in the different units, it implies incurring risks when the income or financing of the organization is uncertain.
In short, zero-based budgets are an opportunity to improve the quality of the activities carried out, reduce costs and increase efficiency. In the case of nursing units, it must be taken into account that a large part of intangible activities exist, that their measurement and the establishment of a system for measuring costs related to health benefits is complex. Therefore, its application must be carried out carefully.