In this public sector guide, we begin our discussion on public sector budgeting with a
look at the public setor zero based budgeting.
As indicatedd earlier, budgeting is the same irrespective of the sector of the economy.
engaged in it.
So your knowledge in budgeting principles for the private sector would
be very much needed. You may have to revise them if you have forgotten them. Now,
you can read on….
Budgeting in the Public Sector: Definition and Meaning
The missions of the public sector establish the purpose of their existence. On the basis of these
The public sector sets goals and very specific goals that, if met, will make the public sector’s goal come true.
The achievement of any period’s objectives necessitates the commitment of effectively managed resources.
In the meantime, resources are in short supply. A budget is a management tool that lets managers divide up scarce resources and make sure they are used wisely.
While a budget is the end result of the budgeting process, budgeting is more broadly defined as the conversion of an organization’s plans into financial predictions that help with planning, resource allocation, and activity control.
It’s important for budgets to be specific, measurable, motivating, and have the support of everyone who will be involved in making, implementing, and reviewing them in order to get the results they want.
The challenge of articulating quantifiable budget targets and outputs makes budgeting challenging in the public sector. Budgeting in the public sector is the process of making financial plans that help an organization reach its goals over a certain amount of time.
As a result, public sector budgeting can be defined as the process of generating budgetary plans for the federal government as well as MDAs and MMDAs. The budget would cover the many sources and uses of state revenues in general.
All taxes that the government intends to collect, the entire amount of grants expected to be received, long-term loans, compensation for all public sector employees, products and services to be procured, assets to be purchased, and so on. So, despite the fact that budgeting in
The public sector’s activities are similar to those of the private sector; yet, given the public sector’s size in comparison to the private sector, it is a more complex activity.
The Minister of Finance is in charge of preparing the budget for the public sector. Continue Reading
Public Sector Zero Based Budgeting (ZBB)
The traditional form of budget is prepared on an incremental basis, but zero-based budgeting is budgeting from scratch without reference to previous budgets.
This means that all activities are assessed to offer a justification for their inclusion before they are included in the current year’s budget.
As the name implies, the basis for preparing the budget is zero, so any unit or function would have to analyze its needs and costs so that the budget is prepared on that basis.
Thus, the budget does not build on any base-year budget, as it’s done in the case of incremental budgeting. On this basis, every line item finds its way into the budget because it would be earned as revenue or incurred as expenditure in the current budget period.
Advantages of ZBB
- It leads to budget accuracy and efficiency since it eliminates redundant activities from previous years as well as deals with previous budget inefficiencies. Also, budgets are likely to be achieved since they are based on current activities that the organization plans to undertake.
- It facilitates goal congruence through coordination and communication among various units of the organization.
- Variances are likely not to be too wide since the current year’s budget does not have the previous year’s inefficiencies and is based on expectations for the current year.
- Budget preparers and implementers are better motivated because their decisions create the budget.
- ZBB enables organisations to constantly assess how well their budgets support the achievement of their objectives and mission.
Disadvantages of ZBB
- ZBB is expensive in terms of time, effort, and cost that must go into its
preparation and execution.
- It requires adequate manpower with the required skills and ability to analyze activities in detail as well as assess the cost implications of these activities.
Public Sector Zero Based Budgeting
A budget is a management tool that lets managers divide up scarce resources and make sure they are used wisely.
Budgeting in the public sector is the process of generating budgetary plans for the federal government as well as MDAs and MMDAs.
The budget would cover the many sources and uses of state revenues in general. Zero-based budgeting (ZBB) is budgeting from scratch without reference to previous budgets.
This means that all activities are assessed to offer a justification for their inclusion in the current year’s budget. The basis for preparing the budget is zero, so any unit or function would have to analyze its needs and costs.