Fiscal Management Techniques

FISCAL MANAGEMENT TECHNIQUES
DEVOLOPEMENT
MANAGEMENT AND
FINANCE
ADITYA A. PUNGAVKAR
FISCAL MANAGEMENT TECHNIQUES.
FISCAL MANAGEMENT TECHNIQUES
PERFORMANCE BUDGETING
Introduction
Management of on going activities and control of expenditure have, traditionally, been given priority in the process of
budget formulation, and execution. The use of budget primarily to keep sending in check was well recognized as long
as government functions were limited in scope and social value of public expenditure was little known. The budget
was used for central control over inputs, such as, salaries, wages, travel expenses, materials and supplies, machinery
and equipment, tool and plants, etc.
The purpose of budgeting, however had to be redefined to conform to the changed view about the work and
accomplishments of public agencies, which came to be regarded as socially desired benefits. In the changed
perspective, the task of budgeting came to be regarded as the effective marshalling of fiscal and organizational
resources for the attainment of benefits. The traditional budget formats and processes came to be considered as
unsuitable for an active role of the executive in the implementation of governmental programmes. A major problem
thought to be tackled urgently has been to ensure an effective use of funds made available to the Executive. The effect
of all this has been to treat as insignificant the amount of none, spent on an activity unless it is considered in the
context of complex inter-relations between ends and means, which could be best pursued through closer to attention to
the concepts of efficiency and economy. Budgeting in the changed situation, has come to be considered as a tool for
the implementation of government plans and programmes. It has been regarded as a process for systematically
relating the spending of funds to the accomplishment of planned objectives. The wide-spread concern with decision-
making processes witness of late has interwoven in it the concepts of efficiency and economy. These concepts are
intimate parts of the technique of performance budgeting.
According to the concept of performance budgeting, the annual budget is in essence a work plan specifying
the programme targets to be achieved by the agency concerned during the financial year. It emphasizes the purposes
for which provision of funds is made.
Performance budget is a tool of management. It lays emphasis on accomplishments rather than means of
accomplishments, it seeks to bring out what the government proposed to do. how much of it, at what cost, and with
what results. Instead of highlighting objects of expenditure, in performance budget emphasis is laid on the purposes of
government expenditure. Physical and financial aspects of each programme and activity are correlated by establishing
relationship between outputs and related inputs. The entire scheme of performance budgeting has to operate within the
framework of clearly defined objectives which are sought to be achieved through successful implementation of the
various programmes and activities undertaken by the concerned department or agency.
DEVOLOPEMENT MANAGEMENT AND FINANCE Page 2

Formulation of Objective
A performance budget is an annual planof action for achieving, through the implementation of various programme
and activities, the early defined objective of the organization concerned. It is imperative, therefore, that the objectives
of the organization are spelt out In concrete term as prelude to preparing the performance budget. The organization
concerned must determine ahead of time as to what It wants to achieve during the budget year. Then only it can
properly frame its programmes and activities for the accomplishments of its objectives.
The financially feasible and clearly defined objectives provide the necessary basis for the preparation of a
performance budget. They set I the framework for the identification of suitable programmes, activities or projects,
which the concerned organization would need to undertake for foe achievement of a Public Works Department should
be known to it In clear and well-defined wins as to construct for which funds have been Prided. It is then only that it
can identify and frame various programmes and projects for Implementation to achieve the objectives. This would also
enable the public works Department to icarporate these programmes and projects in the programme/activity
classification which it prepares as part of its performance budget. An example- of such a classification could be the
following:
Programme/Activity Classification: (Public Works Department)
1. Residential Houses
2. Buildings for Medical/Public Health Buildings for Law Courts
3 Community Centers
4. Government Office Buildings
5. Shopping Centers
6. Direction and Administration
The formulation of objectives Is a necessary stage to precede preparation of program in classification structure for a
performance budget
Program me/Activity classification
A meaningful activity classification needs to incorporated in the performance budget so a to facilitate achievement of
the objectives of this organization. The manner In which a budget is arranged reflects to a large e; tent the thinking oi
the budget administrators. The form of budgeting matters Importantly In the kind of calculation^ that enter into and
the outcome expected from the budget. Its classification bring out the main purpose it Is required to accomplish.
Programme/Activity classification evolved for a performance budget should fully explain and be In line with the
objectives sought to be achieved through the expenditure of budgeted funds.
Different types of budget classifications have been evolved to serve diverse purposes, such as. object or
line-Item classification, economic classification, functional and programme classification. Mo single budget
classification has been found to serve equally well all the purposes, as for instance, control over Inputs, depleting well
the

state of the economy, and providing an effective tool for the planning and management of government programmes and
activities. The choice of a system of classification has to be related to the relevant purpose to be served.
Line-item or object-wise classification serves the purposes of financial accountability and ensuring legality and
regularity of expenditure. Programme/activity classification explains the objectives of the organization in terms of
specific programmes and activities, it facilitates programme management and the measurement of physical achievement
of activities as related to the costs incurred on them. It seeks to establish a meaningful relationship between inputs and
outputs by a display of transactions in terms of programmes, activities and projects.
A functional classification of the budget is necessary under a system of performance budgeting. By functional
classification is meant that the budget presentation of public expenditure will be in terms of functions, programmes,
activities and projects. The meaning and scope of the terms-functions, programmes, activities and projects-need to be
explained. A function is generally a broad division of the total organized efforts of government. Thus, each of the
following: education, Public Health, Defense, Agriculture, may be defined as a function. A programme comprises a
significant sub-division of a function. Accordingly. 'High yielding varieties programme' is a programme under the
function Agriculture. An activity or a project is a further sub-division of a programme. Under the programme 'High
Yielding Variety, an activity could be 'development of rice crop'. A project generally covers expenditure on construction
building, etc. For 'storage and warehousing', and 'Construction of godowns could be a project under it
Whereas the terms. function, programme, activity and project, are definitional distinguishable, flexibility is
available in their use So long as an organisation is consistent in the use of the same term, programme or activity
throughout its budget documents in referring to a component of a function, it has the necessary flexibility available to it.
However, sometime I decisions are taken centrally to name functions, programmes, etc., which apply uniformity to
different \ levels of government. In such cases, there terms would have to be used consistently as once decided upon.
Though there is no hard and fast rule in using the terms-function, programme, and activity, consistency in their use is of
a paramount Importance.
As an illustration, programme /activity classification' in a performance budget, say of Geological Survey of

India, may be presented as follows:
Programme/Activity Classification
1. Survey & Mapping

2. Mineral Explorations
3. Other Explorations
4. Investigation
5. Research
6. Education & Training
7. Direction & Administration
Total :

The object-wise classification (conventional) for the same budget may be presented in the following manner:
Object-wise Classification
1. Salaries
2. Wages
3. Travelling Allowance
4. Office Expense
5. Machinery & Equipment
6. Survey Parties
7. Materials purchase
8. Stationery and Printing Total:
The total or the budget provision in both the cases has to be the same because it la the same budget only
differently classified. Whereas object wise classification lays emphasis on the Inputs on which money proposed
to be spent thereby indicating the nature of expenditure, programme/activity classification highlights
the purposes of the budgeted expenditure to achieve specified objectives.
The scheme of programme/activity classification has to be tailored to the needs of the organization for
which it is framed. Before a classification structure is evolved, the objectives and functions of the organization
should be analyzed. Keeping in view the scope of its operation and the organizational framework available for
the purpose, programmes and activities which may 'best serve the objectives of the organization should be
determined. The programmes and activities should then be displayed in a systematic manner, relating their
financial and physical aspects.
Expenditure of a common or overhead nature rein ting to more than one programme /activity could be
classified in different ways. Ideally, it should be apportioned among the various programmes/activities as it
relates to each of these. If that is not possible, the expenditure may be classified as a distinct programme/activity
provided the amount constitutes a significant proportion of the total budget. This is how the
programmes/activities, named. Research, Education and Training, Direction and Administration, have been
classified in the preceding example. Another alternative may be adopted if the amount of such a type of common
expenditure happens to be too small constituting a very insignificant proportion of the total budget. In such a
case, the | expenditure may be shown under any other programme/activity for which a bulk of it is meant.
Programme/activity classification as evolved should be related to the needs of the management level
which would use it. Different level of classification would be relevant for management and control courses at
various responsibility levels in the organizational hierarchy. For Instance, in an organization concerned with
construction and development of roads, the following classification may be more useful for the purposed of the
top level of management.s

Programme/Activity Classification
1. National Highway
2. Lateral Roads
3. Roads of Economic or Inter-state Importance
4. Strategic Roads
5. State Highways
6. Major
7. District Roads
8. Village Roads
But, for the next lower management level responsible for one of these programmes, say National
Highways, a classification of this programme in to its sub-components would become necessary to serve its
purposes of efficient management and control of the programme under Its charge. Such a classification which
entails a break-up of the programme 'National Highways' into its components may, for illustration purposes, be
presented as follows :
Activity Classification
1. Missing Links of roads

2. Improvement to roads
3. Widening of roads
4. Construction of bridges
5. By-passes
Each of the activities listed In the above classification can be further broken down into its sub-components to
serve the needs of the management level responsible for the efficient and economical execution of that activity.
This process is taken down to the lowest meaningful responsibility level whose activity is sub-classified into its
components' In a way as to establish a proper norms and standards.
Norms and Standards
The rationale of functional classification in a performance budget Is to establish correlation between the physical and
financial aspects of each programme and activity. The output of a programme/activity in terms of physical targets has
to be related to the inputs required which are translated in to financial terms and shown as the budget provision asked
for the implementation of the programme/activity. In a scheme of performance budgeting, therefore, it is essential to
set physical targets for accomplishment in respect of each programme and activity to enable working out of
corresponding financial estimates for incorporation in the budget.

The working of the system of performance budgeting depends importantly on the techniques evolved for the
measurement of output in relation to inputs. The system envisages selection and development of suitable work
measurement units, norms, yardsticks, standards, and other performance indicators for . measuring physical quantum
of works to be done or services I to be rendered. These measurement norms are essential in deciding as to what Is the
proper relationship between the resources to be utilized and the results to be achieved. There are also necessary to
provide detailed justifications for the budget provisions asked for, and to furnish a scientific basis for the quantum of
work proposed to be undertaken for the completion of an activity. Appropriate norms and standards supported by
adequate data reduce subjective element and increase objectivity in the framing and scrutiny of budget estimates.
General Services include services indispensable to the existence of an organized state, such as Police, Defense,
External Affairs, Tax Collection, District Administration. Fire Protection, etc. This sector is sub-divided into six sub
sectors, namely, (i) Organs of State (Parliament. Head of State, Judiciary, Audit, Council of Ministers and Elected
Representatives), (il) Fiscal Services (Agencies for collection of taxes). (Ui) Interest Payment and Debt Services, (iv)
Administrative Services, such as Public Service Commissions. District Administration. Police. Jails, etc.. (v) Pensions
and Miscellaneous General Services, and (vi) Defense Services, Social and Community Services sector covers
programmes and activities relating to the provision of basic social services to consumers, such as Education, Medical
Relief, Housing, Social Security and welfare, and Services required for community living, such as Public Health.
Urban Development, Broadcasting, Information and Publicity. Economic Services sector includes programmes and
activities in the uefcfe of production. Distribution. Trade. Regulation etc. This Economic Services.
(ii) Agriculture & Allied Services (Agriculture, Cooperation. Planning. Statistics, etc. Minor Irrigation, Fisheries.
Forests, Soli Conservation. Dairy Development, Animal Husbandry. etc.), (Ill) Industry and Minerals (Large and
Medium Industries, Village and Small Industry. Mines and Minerals), (iv) Water and Power Development
(v)Transport and Communication. (vi) Railways, and (vii) Posts and Telegraphs.
It is however, necessary that the accomplishment of these missions and revenues are expressed in terms of
accountable work units. It is important to recognize that the applicability, of work norms has to be related to
quantifiable physically output. Also, the end products comprising the output must be of a homogeneous character to
admit application of the same measurement norm. However, in the case of many activities, the end product
may not be homogenous. Therefore, for the application of work norms; it is necessary to group homogeneous units
of output in to one category and to determine as many categories and the related performance standards as there are
different types of end products or output.
It is important that measures of work devised are realistic and acceptable to the various participants of the activities.
These must to acceptable, to the operating officials whose work is to be evaluated in terms of these norms. They must
also be acceptable to the higher management who would be evaluating the performance of executing authorities by
using these norms. Also, such norms or measures of work should be acceptable to the authority responsible for
scrutinizing and a proving budget estimates framed on the basis of these norms.
A complete understanding of the nature of work is necessary before proper standards of performance can be set.
These standards should be related to the local conditions and not transplanted from other different economic systems.
Under heads as correlated with the budget heads can prove of direct Help to management.
In the conventional budgeting system conceived largely in financial terms, emphasis is placed on financial
and legal accountability of the executive to the legislature and within the execution, of the spending agencies to the

controlling limits. The classification of accounts is, accordingly evolved and developed mainly to satisfy the twin
consideration of financial control accountability.
In view of these objectives a conventional budget, in India the classification of account was structured so as
to correspond to the organization in which the transaction occurred, and within the organization to the inputs on
which expenditure was incurred. For example, construction of a hospital would be classified and displayed in
accounts as public works expenditure and not as expenditure on a programme like Medical Relief under Social
Services. The classification indicated the nature of expenditure but not its purpose. It did not enable identification of
expenditure with functions, programmes, activities, and projects. It lacked management approach In accounting In as
much as it did not provide the facility for monitoring and analysis of expenditure on fraction, programmes, activities
and projects.
Also the classification as developed in the past did not provide any correlation between account heads and the Plan
heads of development. This created problems In obtaining information regarding progressive expenditure in respect of
plan programmes, and made their evaluation difficult.Accounting classification adopted by a government should be
such as would adequately serve its objectives. The various purposes required to be served by accounts can be grouped
under management and accountability functions. Whereas the management function can be served best by classifying
accounts in terms of functions programmes, activities, and projects, the purpose of financial control and accountability
is achieved better through item-wise control over expenditure facilitated by object-wise classification.
The Governments activities in providing increased irrigation water, seeds, fertilizers, credit, do contribute to raising
agricultural production. The crux of a scheme of performance budgeting is to ensure that activities are performed with
maximum efficiency and economy. It may be mentioned that quantitative measurement of output of an activity dose not
by itself ensure quality of the end-product. Other methods are nodded to assess qualitative aspects of an activity and to
ensure quality control. Fcr Instance, the output of an educational institution can be evaluated in terms of teacher-
students ratio. But suitably constituted system of inspection.
Accounting Structure
In order to operationalise the scheme of p er f or ma nc e budgeting, it is imperative that the concept IN also built
into the structure of accounts. It is necessary that the budget classification in terms of function, programmes, activities,
and projects, It supported by a similar classification in accounts.
Accounting is the basis on which budget is framed, Therefore, a suitable change in the classification of
accounts should be considered a per-requisite for the introduction of performance budgeting. Accounts need to be
function, programme, and activity oriented so as to speak in the same language as the performance budget. For instance,
if Medical Relief is a programme included in the budget classification, there must be a corresponding account head from
which expenditure on the same programme could be monitored.
Performance budgeting being predicated on the privacy of management function, requires preparation of
accounts in a form which facilitates monitoring and analysis of functions, programme activities, and projects. A
functional classification of accounts predetermined norms and standards can provide good yardstick for the evaluation
of performance. Different types of norms and standards have been suggested for use depending upon the nature of
activity and their suitability in particular situations.

There is also a fourth sector in the classification, which is called "Grants-in-aid and Contributions". This sector is meant
to record transaction pertaining to transfer of resources in the form of grants-in-aid to other Governments and
international agencies.
In the new scheme of accounts, a major head is assigned to each function, and a minor head is allotted to each
programme. Under each arising minor head, there would be sub-heads assigned to activities/schemes/organizations
covered by the programme. Major and minor heads classification is common to Union States, and Union Territories
Governments. These authorities, however, have flexibility available to them for adopting sub-heads to suit their
requirements. At the fifth level, there are detailed heads. A sub-head is composed of these detailed heads. A list of 28
standard objects of expenditure has been recommended as detailed heads for use by the various authorities as per their
respective needs.Under the new system, the object classification has been retained and placed at the last tier. It is meant
to provide for item-wise control over expenditure, and to ensure financial control and accountability. Its purpose is also
to furnish the basis for estimating fund requirements for activity and programme.
The revised classification of accounts establishes adequate links between budget and account heads and the Plan heads
of developments. This has facilitated obtaining information of progressive expenditure on Plan programmes and
projects. The new classification has also enabled bringing together under the appropriate function (major head) and
programme (minor head) all expenditures on that function or programme Irrespective of the organisation administering
the function or the programme. The sample applies in the case of any activity (subhead) also, all the expenditure on
which can be brought together by operating on the same subhead as prescribed for that activity. The principle adopted
In the new accounting classification is that all expenditures on a function programme or activity. The revised
classification of accounts has provided the necessary facility for monitoring and analysis of expenditure on functions
programmes, and activities to aid the management function.
Decentralized Responsibility Structure and Delegations
Performance budgeting is a technique which requires for its successful operation a style of management based on
decentralized responsibility structure. The technique has to be followed right down to each responsibility level where
formulation of a performance budget is initially done.
Performance budget prepares on the basis of similar budgets of lower formations are more realistic and useful for
serving management objectives. The emphasis must be laid on the operating levels where resources are utilized, ser-
vices are rendered, and works is accomplished. It is at these levels that performance budgets should be Initially
prepared. These are the levels which are better qualified to judge programme requirements, and are best aware or what
needs to be done. A performance budget should first be prepared at the lowest meaningful responsibility level and then
reviewed and coordinated at higher levels.
A performance budget can lead to good results only when the various levels of management in the organization perform
and accomplish their tasks. Their involvement, in a meaningful way, in the formulation of performance budget should
inspire them to achieve its efficient implementation.
The preparation of a performance budget has to follow the decentralized responsibility structure of the organization
concerned. If we consider the example of a Directorate of Education, its responsibility levels may follow the line of its
organization structure. For illustration purposes, the organization chart of such a Directorate may be present as given
next. For the preparation of a performance budget, guidelines need to be framed at the top level.

These should include directions regarding the objective to be accomplished and the availability of resources therefore.
Within the framework of these guidelines detailed budget estimates are prepared at various responsibility levels and
coordinated upwards. Considering the above illustration the Director of Education should frame guidelines for budget
formulation. These should travel down to lower responsibility levels which would prepare their budget estimates to
achieve the tasks assigned to them, in accordance with the resource availability as indicated by the top level.
The principal of a school or college is the lowest meaningful responsibility level in the example given above. It
is at his level that the formulation of a performance budget is initially done within the guidelines received, and on the
basis of accepted norms, yardsticks, and standards. The budget estimates prepared at the Principal's level are reviewed at
the level of the district Education Officer. This review is conducted within the framework of the known guidelines, and to
see whether the estimates are built on the basis of agreed upon norms and standards. In this scheme, there would be no
scope for the application of arbitrary or adhoc cuts to the budget estimates. After due scrutiny of the budget estimates
conducted at the level of the District Education Officer, the budgets of the various Principals get coordinated and con-
solidated into a performance budget for the District Education Officer, The process is taken upwards resulting hi a
performance budget for the Deputy Director, which would be a consolidation to the budgets of the District Education
Officer working over him. And finally it merges Into a performance budget for the Director of Education, which is a
coordination and consolidation of the budgets of the various Deputy Directors. The performance budget of the Directorate
do Education. thus, gets framed after the budget estimates prepared at the lower responsibility levels are reviewed and
coordinated upwards at each higher level.

The preparation of performance budget at each level in the organization hierarchy results in assignment of responsibilities
to different levels of management. This ensures better accountability of these responsibility levels against their budgeted
plans, tasks and provision of facilities necessary for the discharge of their functions by the various responsibility levels.
One such important facility is delegation of financial powers.
A decentralized responsibility structure under the scheme of performance budgeting necessitates delegation of financial
powers down the line, commensurate with the responsibilities to be discharged at various levels. Adequate delegations are
necessary for an efficient discharge of responsibilities at the various levels of management.
In the Government of India, delegation of financial power have been increasingly made, starting with the delegation
scheme of August 1958. The delegation schemes of June 1962 and later of October 1968 were followed by Ac two
recent schemes enhancing the powers of the administrative ministries departments-one Introduced from April 1975
and the other from January 1978. These delegation made from time to time show the willingness of the Ministry of .
Finance for delegating more and more powers to the administrative authorities and executing agencies whenever a
convincing case existed for the purpose, in any case, the trend of delegation fn the past indicate that it is no more
difficult to bring the Ministry of Finance around to delegating enhanced powers to administrative mini-
stries/departments if suitable case for the same could be established. The issue which has assumed importance for
debate now is that why the delegations after being made are do not exercised by the delegated in many cases. Unless
the delegations are used by those to whom they are given below, the very purpose of a scheme of delegations is
defeated. It, therefore, becomes important to identify the factors which inhibit the exercise of powers by the delegates.
Whereas the adequate delegations commensurate with responsibilities are essential it is equally important that
necessary environment is created in which these delegations can be actually exercised. The various factors inhibiting
the use of power by the delegates should be sought to be removed.
There exists a multiplicity of rules and regulations which continue to increase or charge without the redundant one
being removed with the same speed as the new one are added. In such a situation, it generally happens that the
delegates do not feel sure of knowing all the relevant rules while exercising their powers. This acts as a damper in
their making use of the delegations given to them. In their eagerness to avoid mistakes, they are prompted to consult
other authorities both horizontally and vertically, to seek their concirence. There Is, therefore, an important need for
the simplification and rationalization regulations should be made available to the delegates through manuals in
updated from.
Sometime, delegations are related to monetary limits fixed on the basis of the prices prevailing at the time of
introduction of the delegation scheme. This would be the case for such I administrative actions as purchases,
contingent expenditure, award of contracts, insurance, write off of losses etc. These delegations loose meaning I when
the price situation undergoes a perceptible change. A revision of such delegations would therefore, be called for as
soon as there Is a significant change in the price level.
Delegation scheme once introduced cannot remain static for all times. They should be modified to suit the changing
circumstances and needs. Renewal of the schemes based on periodic review may. therefore be necessary. For this, con-
solations with the delegates may help to rectify some of the weaknesses of the schemes, revealed through their
experience.

Reporting and Review of Performance
A performance budget is a work plan which expresses targets for achievement in respect of various responsibility
levels, based on accepted norms and standards. Measurement of actual performance both in physical and financial
terms In relation to the budgeted plan Is an extremely Important aspect In the use of performance budget. This,
however, needs to be done In a manner as would help decision making and control at the various levels of
managements. In this context, designing a meaningful information and reporting system assumes vital importance.
The types or Information that needs to be generated for decision making and control purposes depends on the nature of
the organization concerned and need for the same at appropriate levels. Each level of management in an organization
has Its requirements of Information for discharging its functions to achieve the tasks assigned to It. The information
needs to be distilled and made appropriate as It Is supplied to together levels of management. For higher management
levels, it Is the trends highlighted In the information supplied which are more important than the exact accounting
figures. At lower level the concern is more for information regarding volume of work done in relation to the assigned
tasks.
For developing an effective reporting system it Is essential that information needs of the various levels of management
are identified. It must become clear as to what Information is required by which management level and at what time.
There may be various levels of management in the organization, such as strategic corresponding to the top level,
tactical representing the mid* die level, and operational meaning the lower level. There may be these three or even
more levels of management in an organization. It is necessary to know the objectives (plans, targets, etc.) of these
levels or the specific tasks which each level Is required to perform. The information requirements of these levels would
need to be determined In the context of their respective objectives. It would be necessary to determine the profile of
quantity and quality in terms of which the information needs of each level of management are to be met. Time
dimension is also important. It is necessary to determine the periodicity of frequency with which information should be
supplied to different levels of management. Also measures need to be taken for debugging of Information to ensure Its
accuracy.
The accounting structure. In addition to recording Information in terms of programmes, activities, and schemes, should
also collect and supply information regarding progressive expenditures in respect of different responsibility and cost
centers. A suitable coding scheme may be of help in monitoring information regarding progressive expenditures in
terms of programmes, activities, projects, schemes, etc. as related to different responsibility and cost centers.
An efficient accounting system is essential for monitoring and analysis of expenditure. The speed and accuracy with
which accounts are prepared are the necessity ingredients for the accounts information to prove useful to management
for various purposes. The Government of India have already introduced an accounting information system based on
computerization of accounts. The system has been developed for consolidation of accounts of receipts and expenditure
for the individual Ministries/Departments and also for the Government of India as a whole. This system includes six
levels of classification, the major head, the sub-major head, the subhead, the detailed head and object head. All these
account heads have been codified by using a 13 digit code which can describe uniquely every item of a system of
management accounting in government to facilitate working of the scheme of performance budgeting.
Management accounting is concerned with that type of information which can be useful for management The emphasis
is laid on the usefulness of Information in serving the needs and purposes of management. The accounting information
would need to be presented in different forms to cater to the requirements of management at various levels.
management accountancy has to be as wide as] management itself. Management accounting 1 fact encompasses financial
accounting, cost ac-i counting and all aspects of financial management ] It also involves supplementing the accounting
Information with other data not reflected in the accounts. The additional information requirement may relate to
commitments made, physical accomplishments of programmes or activities, etc. In a system of management accounting,
information would need to be controlled in addition to what is available from accounts, to help management in its various
tasks. Management accounting, therefore, in broad terms may be stated as that aspects of financial management which
facilitates efficient and economical execution of various tasks in the organization by providing the various levels of
management with relevant and timely information concerning their specific needs. Accounting being an Important function
of management , the logical approach Is that the visibility for the maintenance and compilation accounts should vest in the
administrative departments and executing agencies. The Government of India have already completed (1st October. 1976)
the separation of accounts from audit where by accounting function has been departmentalized This should facilitate
introduction of management accounting in departments to support the system of performance budgeting. The
departmentalization of accounts should result in timely flow of accounting and financial information to management at
various levels.
The performance budget is required to be described Into convenient periods depending upon the nature of the organization
and its functions. For each of these periods (by-monthly, quarterly four-monthly, etc) a budget plan for the tasks or targets
to be achieved should be available The monitoring of expenditure and the related physical accomplishment needs to be
done In terms of these periods and compared with the budget plan for the same period. The purpose Is to enable the
management to make the course corrections' in the event of deviations occurring between actual accomplishment and the
budget plan.
PLANNING PROGRAMMING AND BUDGETING SYSTEM (P.P.B.S)
Planning programming and budgeting system (PPBS) Is a technique for optimization of funds in the budget exercising
proper choices among programmes which compete for limited resources. It emphasizes the planning aspect of budgeting
for selecting the best programmes out of a number of alternative available, which could be Implemented with a given
quantum of resources. An Important part of the system, therefore, is to identify and evaluate alternative programmes and to
exercise the right choices among these achieving specified objectives. The system treats budgeting as an allocation process
based on analytical studies, like cost-benefit/effectiveness analysis, systems analysis, etc., which are carried out for
comparison among programmes before funds are allocated to those considered the best.
ESSENTIAL OF PPBS
The system of planning programming budgeting requires that the goals or objectives of the organization, to be achieved,
should be identified in clear and specific terms. The best step is to search for alternative programmes for achieving these
objectives most effectively and at the least cost. A programme structure needs to be evolved in terms of the objectives to
be accomplished, relating cost of each of the programmes, their subprogram’s, and their further sub-divisions to the
corresponding output expected from each of these.
It is not only the first years cost of a programme which needs to be determined, but also the second, third, and
subsequent years' cost must become known. It is sought to achieve the lowest possible input- output ratio by implement-
ing the selected programme with maximum efficiency and economy. Burkhead and Miner while referring to

programming budgeting system (Programme Budgeting) have stated : "Programme budgeting, in its recent evolution, has
three partially separable objectives. The first is taxonomic the classification of government activity by goals and
objectives. The second is analytical- the comparison of costs with outcomes and the exploration of alternative means of
achieving outcomes. The third is projective the long-range planning of government programmes. The programme
selected by the use of analytical studies need to be phased out into a plan for their implementation and budgeted
accordingly. Measurement of the performance of the programmes is an important feature of the scheme to ensure
optimum output for the cost incurred.
A BRIEF HISTORY
In the United status of America, it was Robert McNamara. who soon after Joining the Kennedy Administration in 1961,
introduced planning programming budgeting system in the Department of Defense. The system was judged so successful
there that by 1965 Robert McNamara was able to convince President Lyndon B. Johnson that the system could be
profitably applied throughout the entire executive structure. On August 25, 1965, President Johnson issued a
memorandum to the heads of all federal departments and agencies directing them to adopt the new planning
programming budgeting system. This was followed by a directive to the same effect from the Bureau of the Budget In
October of that years.
After 1965. PPBS was introduced in a large number of bureaus and divisions throughout the federal
government, and by the Comptroller General to modernize the General Accounting Office. The year 1967 witnessed the
sub-mission to the U.S.Congress of the first budget reflected the impact of PPBS.
Whereas the system continued to work successfully in the Department of Defense, It did not work as desired
and anticipated in the civil departments. It had to be abandoned In civil departments of the federal government of U.S.A.
about two years after its Introduction. However the legacy of PPBS in the federal government | continued to reflect in the
emphasis which got placed on programme analysis.
A conceptually logical system of planning programming budgeting failed at operating levels for various reasons. A
number of factors can be Identified as being responsible for Its failure In the civil department of the U.S. Federal
Government. These include resistance from staff, lack of adequate and timely information required for carrying out
analytical studies, and political factor which was extremely important.
COMPONENTS OF PPBS
The planning programming budgeting system as introduced In the civil departments of the federal government of U.S.A.
incorporated in its operation five components, namely, programme structure (programme categories, sub-categories, and
elements) issue letters, J programme memoranda, special analytical studies, programme and financial plans. Programme
categories covered such grouping as served the same broad objective. To site from Burkhead and Miner : The department
of Health, Education and Welfare defined four programme categories in addition to Executive direction and
management. These four categories are : Education, Health, Social and rehabilitation services, and Income security.
Within 'Education' there are six sub-categories :
Development of basic skills;

Development of vocational and occupational skills;
Development of academic and professional skills; Library and community development;
General research (non allocable research); and General support.
Within Development of vocational and Occupational skills there are, for example programme elements
Improving the education of the general population
Improving the education of the economically and socially disadvantaged
Improving the education of the physically and mentally handicapped.
The planning programming budgeting system as introduced in various departments and agencies of the U.S. federal
government sought to define programmes within departments and agencies. A departmental charge was broken into its
components which were called programmes. These programmes were divided into their sub-programme and further into,
several programme elements. As stated earlier, the classification evolved consisted of a hierarchy of three group, namely,
programme categories, programme subcategories, and programme elements. By such a programme structure, it was
intended to facilitate better analysis of agency programmes by providing information regarding all relevant factors per-
taining to cost and output.
The second component of PPBS is Issue Letters. These were to be sent by the budget Director to the agency
heads, and incorporated instruction regarding the major programme issues that should receive attention during the
current planning and budgeting cycle.
It had been stipulated that each programme would be support °d by a programme memorandum. This
was meant to provides justification for funds asked for funds asked for the budget proposals. The programme
memorandum was also to include an analysis of outcomes and alternatives while at the same time underlining the
assumptions employed. In short, a programme memorandum was a brief document which outlined the objectives, broad
strategy and major choices with respect to each programme. It summarized the decisions, with suitable explanations,
made by the agency on major issues pertaining to a programme category.
Also, the programme memorandum was required to be supported, where possible, by special analytic studies. Special
analytic studies covered all such documents as had been used to aid the policy making process, such as economic
analyses, sociological evaluations, data collection efforts, development of useful techniques, mathematical models, etc.
Each department prepared a programme analysis relating to various programme elements so as to outline the various
alternatives competing for funds alongwith their cost and .benefit consequences. Decisions taken on the basis of such
analysis were then Incorporated In the Programme and Financial Plan (PFP) of each Agency.
The various components of the system were required to be linked together In a multiyear programme and financial plan
which would show the relationship of budget to planned programmes. Programme and financial plan layout for the next
five years the funds committed to various programme areas by past decisions. They also provide information,
wherever feasible, on projected programme outputs for the same period. The programme and financial plan serves the
purpose of Indicating the extent to which further budget choices are foreclosed by the current years decisions, and helps
to identify options which remain to be considered during the decision process. Thus, the programme and financial plan
express objectives and planned accomplishments wherever possible. In quantitative physical (or output) terms and

financial (or Input) terms. Physical description of programme elements might Include, for example the number of
persons to be trained, the number of children to receive per-school training etc. The budgeting process which Is to be
carried within the frame work of programme and financial plan would translate the decisions In the PFP into the annual
budget allocations with more precise measures of inputs and outputs relevant to one year period of the budget.
PPBS AND HOUSING FUNCTION
The merit of PPBS lies In Its programme structure evolved for making better choices. Programmes are
budgeted to terms of all, J elements necessary to their execution. Of course formulation. In clear and specific terms of the
objectives to be achieved by the implementation| these programmes must precede the stage of developing a programme
structure. For instance. If PPBS Is sought to be applied to the function of Housing w i t h i n the jurisdiction or the housing
Division of the Ministry of Works and Housing, the objectives to be achieved are : to bring about a» improvement in the
quality of human settlements in the country and construction of small and cheaper houses in large numbers within the
paying capacity of the lower strata of the society. For achieving these objectives of removing housing Inadequacies in
India both In their qualitative and quantitative dimensions, the following programmes may be concretized for
Implementation preserve and Improve the housing stock. provide house sites to landless laborers in rural areas.
Extend support to institutional agencies such as the State House Boards and Housing and Urban Development
Corporation to enable them to provide assistance for the benefit of low and middle income groups.
Encourage the private sector by giving certain Incentive to undertake construction of houses for the economically weaker
sections of the society.
Encourage construction of houses for the economically weaker section of the society under Section 21 of the Urban Land
Ceiling and Regulations Act. 1976.
promote Sites and services programme on a large scale to cater to the needs of the urban poor.
identify research and development of cheap building materials; and
Each of these programmes should be sub-divided into its sub-programmes which can further be sub-divided into their
components. As mentioned earlier, in U.S.A. they called this hierarchical structuring of programmes and their sub-
divisions as programme categories, programme sub-categories and programme elements. Some other terms, depending
upon the administrative convenience, can also be used for| referring to such a hierarchical structuring of .programmes. So
long as the organization concerned Is consistent in the use of these terms for naming particular programmes and their
subdivisions, it would serve alright the purposes of communication.

SOME IMPORTANT ISSUES
The manner in which PPBS is introduced in an organization and the Implementation strategy employed for the purpose,
would "flatter significantly in a successful operation of the system. Before introducing the system, it must be made sure
that factors like conceptual, clarity, organizational capability, etc. have been developed in the organization. Also, the
necessary information system and trained staff well-versed in the use of analytical techniques should be available in the
organization where such a system is introduced.
The application of advanced planning and management techniques ha£ resulted in an incapable need for
developing new informational and decisional technologies. These technologies are of necessary help in coping with the
enormous analytical work involved in the operation of PPBS. Through them, it is sought to generate reliable data for
evaluating the various alternatives avail-able for achieving a particular purpose, information is required to be supplied on
inputs and their costs, outputs, effects in terms of benefits of dis-benefits.
There would be faced many a problems In measuring outputs of a number of programmes. Suitable indicators would need
to be evolved for measurement of output In relation to the expenditure Incurred. It may be stated that economic and
business techniques alone have not proved adequate for the measurement of outputs of many of the government
programmes, especially social programmes. These are activities for which quantitative measurements are not possible. It is
recognized that there does exist a pretty sophisticated set of economic indicators. But there is a serious deficiency in
developing social Indicators; and most public activities are carried out for social purposes. The economic aspect of social
activities is quite often only a minor part in the total vision. The problem is further heightened if in addition to the
quantitative aspect of services, their qualitative aspect is also sought to be assessed.
The success of PPBS depends, to a large extent, on the stage of development of informational and decisional technologies.
The techniques of system analysis, cost-benefit analysis, and cost effectiveness analysis are indispensable aids to the
analysis of alternatives. The degree of sophistication with which informational technologies are used by the analytical staff
is the greatest source of strength for PPBS. To the extent these technologies are inadequately developed or are
incompletely made use of the analysts, it would effect the operation of PPBS.
The specialized information cycle basic to the operation of PPBS is expected to provide meaningful data which could be
used for rational decision making. Therefore, the perfection of skill with which the system of planning programming
budgeting is operated would go hand in hand with the improvement made by the organisation concerned in the
informational and decisional technologies used by it. Accordingly, it becomes essential that along with the operation of
PPBS, the concerned department or agency also assumes responsibility for perfecting the supporting technologies in order
to create the flow of information necessary in the decision making process and for the evaluation of programmes.
To operate the system of planning programming budgeting successfully, a government agency would need adequate staff
properly trained in policy planning and programming. This staff should be well-equipped to conduct the necessary studies
for effective planning and implementation of programmes. At present, bulk of the staff engaged in budgeting work in the
Indian governmental organisations are trained primarily in traditional methods and practice*. Since the ultimate
effectiveness of any system depends on the skill with which it is worked, the inadequacy of qualified and trained staff
would be a serious limitation on the operation of PPBS. It is imperative, therefore, that the staff involved in budgetary
work for operating a system of planning programming budgeting possess suitable qualifications and are given proper
orientation in the modern techniques of planning and budgeting, it is also important that the old staff which are to continue
to be involved in such a work are adequately trained and given reorientation to install confidence in them and overcome
their resistance born out of their vested interest in the conventional system of budgeting.

CONCLUSION
PPBS provides a scientific and rational basis for selecting the best programmes out of the various alternatives
available and making allocation of funds therefore in budget. The selection of programmes in done by using the
techniques of systems analysis, cost benefit analysis, cost-effectiveness analysis, etc. The system requires for its successful
working adequate organisation capability, an efficient and effective information system, and trained staff well-versed in
the application of sophisticated analytical techniques. These are important issues to be recognized and properly attended to
for installing a system of planning programming budgeting in an organization and for operating the system successfully.
P.P.S.S. TECHNIQUE
Introduction
The planning programming and budgeting system could be considered an American innovation. This technique is in
response to the need for more sophisticated analytical procedures to facilitate and rationalize the increasingly complex task
of public sector decision making and a way of approaching the ideal of comprehensive planning and development
management together with a method of optimizing the costs and benefits of public investments. The budget being the most
effective directive and operative instrument available to the Government should be consistent with that role and a clear
articulation of Government policies.
America dose not have a system of comprehensive economic and physical planning whereas in Britain physical planning
is well established and considerable progress in setting up a system of economic planning. But at that time they did not
have a well articulate programme as the financial dimension. So they have adopted PPBS technique. Doing so will make
planning a realistic business and plan implementation a process of optimizing the resources in puts and physical outputs.
Thus in English context the PPBS exercise would essentially be an exercise in better planning and better plan
implementation rather than budgeting refonp.
Historical Background
Traditional budgeting system is considered to be inadequate and obsolete. The budget is organized by executive
departments rather than major objectives, functions or programmes. It is designed for a short period usually one year. It
does not reveal whether government expenditures are accomplishing their avowed objectives or the extend to which they
do so.
Projects, Activities & Functions
it is described as a major division of the total organised effort of the Government e.g. National Defence. Education, Public
Health etc. Programmes Within each function there may be programmes each representing a broad category which
identifies the end products of major organizations e.g. Education Function University Education Programme.
Projects
Programmes consist of projects Activity. Activity is a segment of a programme which represents homogenous type of
work carried out by subsidiary organizations to achieve or contribute to the achievement of the end products of a
programme. Once the above things are finalized next step is to:

• Relate the programmes, projects and activities to government departments, organizations, agencies and offices
(including state undertaking) pin points and assigns departmental organizations or agency responsibility in
execution and implementation,
• Costs and benefits.

• Time periods-provides the idea of the period during which the products would be forthcoming.
Priority Rating
An important element in programming is to establish Priorities as between various programmes and between different
activities of the same programme. For proper priority rating, a mass of detailed information is necessary particularly :
a. on the precise nature of programmes, projects and activities their justification in terms of needs urgencies of desirability
and their break down component units.
b. nature and quantity of physical output of services.
c. costs, capital, operating and maintenance and revenues or benefits.

Operational Steps
The emphasis in performance budgetary ts on relating programmes and activities and their costs or inputs not to revenue
but to work performed or activity carried out. The quantitative data measuring the accomplishments or work performed
under each programme, sub-programme, projects and activity have to be estimated, considered and presented.
In some cases, work performance may defy quantification and so a non- quantitative description of the work
performed or to be performed may be given. With performance data oyer a series of years, and relating the same to the
unit budget allocation an assessment could be made of the work efficient of each budget. Similarly by relating
performance to prescribed or desired norms or standard the performance could be improved and management toned up.
1. PPBS Report Contents
i. Programme and financial plan (PFP)
ii. Programme Memoranda (PM)
PFP' is a quantitative statement in tabular form showing data for the current year and for 5 years ahead or
more or less. It expresses objectives in input-output terms and contain physical description of programme elements.
Along side physical data, financial data are given showing costs and revenues.
PM is an accompanying explanatory document. It describes a recommended programme for a multiyear time period,
what it costs, why it is justified, what its aims and objectives are and what assumption it is based on? These descriptions
are required to be projected for several years into the future. PM also contains a comparison of alternative programmes,
their effectiveness and cost implications. The two documents taken together provide ample materials to legislators who
finally approve the budget. To operate the PPB system an enormous mass of detailed, refined and reliable data is
rquired, especially on unit costs, unit revenues performance norms and measures.
From this lislt of requirements, it should be obvious that the difficulties involved in operating the system, are quite
formidable among the doubts raised are :
The non-availability or lack of data.
The conceptual programme elusiveness of societal goals
The Inadequacy of the knowledge of effective means to achieve goals.
The failure to comprehend all possible alternatives.
The impossibility of separating factual from value elements.
The difficulty of determining the role of time elements in decision making. (Short Versus Long Run)
The relative ineffectiveness of cost list analysis techniques so far developed.

The programmes of inter-departmental or interagency co-ordination (e.g. | planning organization versus the treasury).
The likely uncollinyness of legislators on long term commitments especially financial.
Merits & Demerits
PPBS technique is yet to be exporunented j in India. But since it is working i.e. planning, programming and budgeting,
as a system, it enables the quick decision making and optimum resource allocation which are the loopholes of the
present planning system. PPBS technique
promises an efficient system once the technological requirements are met.
ZERO BASE BUDGETING TECHNIQUE
Introduction
The word Budget is derived from the French bougette. a dlminitive of the old French bouge. mean a small leather bag.
The meaning of the Budget has shifted from the bag to the documents which the Bag contains i.e. to the financial
proposals which the Finance Minister puts before the Parliament every year officially called 'Annual Financial
Statement* and it is a statement of the estimated receipts and expenditure for the financial year.
Its basic objective is the control over public money and accountability. Those who carried on the struggle for
responsible government found that popular control of finance was essential and hence require the government to submit
a comprehensive plan for the approval of Legislators showing how much money they needed for one year and how they
propose to spend it.
Many financial commentators have pointed out that the distinction between plan and non-plan expenditure may be
dispensed with for a better evaluation of total state expenditure. The element of accountability seems to be specially
missing in case of ongoing programmes since they are introduced in budget on an incremental and a routine basis.
Zero Base Budgeting, was first tried in United States and has been now adopted by many governments.
The need for an effective procedure is increasingly apparent in both industry and government today. All institutions
must adopt to an environment in which the allocation of resources presents a constantly deepening challenge, with
government feeing spinaling costs and increasing demands and costs of services. Now question is where and how can
we most effectively spend our money.
The basic feature of Zero Base Budgeting is appraising public expenditure in the involvement of all decisions units in
the decision making process. The process, requires each expenditure unit to Justify its entire budget request in detail and
puts the burden of proof on him to justify why any money should be spent. Each Manager must prepare a decision
package for each activity or operation and this package includes an analysis of purpose, alternatives courses of action,
measures of performance, consequences of not performing the activity and benefits.
The two basic .steps on the preparation of Zero Base Budgeting are development of a decision pack run and formulation
of the alternatives methods of performing a task. A decision package describes any function by which an activity can be
identified.
Hence, the basic concept of Zero Base Budgeting is to re-evaluate all programmes and expenditures every year, hence,
the term Zero Base.
Zero Base Budgeting can aid management in developing a fully integrated control system that:
i) Establishes clear cut goals and objectives.
ii) Measures progress towards these goals and objectives.
iii) Indicates positive action required if performance deviates from plan to Budget.
iv) Displays potentials for further improvement.
Elements of Zero Base Budgeting
The Zero Base Budgeting has three basic elements and they Interact to achieve the benefits. The three elements are as
follows
The decision package.

The decision unit, and
The ranking process.
The decision package is the form in which the individual manager submits his tentative plans and the resource needs to
achieve those plans. The first step in the implementation of Zero Base Budgeting is the identification of the decision
units. The second and third factors are the selection of alternatives available to the decision maker at that level and the
time available respectively. Since the Zero Base Budgeting is an output oriented process, these are certain things that it
must contain. These must be information to identify what the decision package represents -the identifying information.
While the national process enables the management to allocate its limited activities to areas which result in
maximum benefits. In a large organization like government, the selection of the projects will be undertaken at several
levels and projects and programmes involving expenditures above a specified unit could be selected by government.
The Operational Steps
Diagram shows the relationship between Planning and Budgeting. This relationship is dynamic because
resources required to achieve desired goals are not unlimited and Zero Base Budgeting tells us how best to achieve
given results.
Diagram on next page shows the basic Zero Base Budgeting formulation process. As Zero Base Budgeting
affects all aspects of the management process providing managers with an additional operational tool to more
effectively manage their business. The four basic components of this operation Planning, budgeting, implementation,
fluctuations through allowable budget variances is illustrated in the Diagram.

Merits of Zero-Base Budgeting
1) It can generate major benefits to the organisation, if properly clone. Since it is a management system a.s
well .1 resource allocation system, so management information flows from the lowest levels to the
highest and Two-Way Communication can be achieved through Zero Base Budgeting.
2) Since all activities are identified discreetly and since the goods or services| of these activities are also
identified duplicative and obsolete efforts can be exposed.
3) It is a budgeting approach which marries the concepts of Cost-benefit analysis and marginal analysis
with those of budgeting.
4) The ranking process allows each manager to explicitly identify his J priorities, merges decision
packages for ongoing programmes with long-terms objectives.
Demerits of Zero Base Budgeting ;1
1) The most often voiced criticism of it are that it is too complicated, it Witt j generate a mountain of paper i
work and that it cannot be applied to an entire organization.
2) There will be lot of difficulties in the j transition from traditional budgeting to the Zero base budgeting.
3) Finally. Zero Base Budgeting is a time consuming, costly, difficult and complicated process.

Conclusion
Since Zero Base Budgeting has been preceded by at least two less-than- successful efforts to reform financial
management (PPBS and MBO). there are some legitimate concerns. It cannot cure all ills for all organizations. It is as
much a matter of technique. The technique must vary as it is applied across many different operations.
To a great extent, the success of the technique will not be dependent on the technique itself (because the
technique is simply sound management) but upon how it is implemented and managed.
INTRODUCTION OF ZERO BASE BUDGETING IN THE GOVERNMENT OF INDIA
(A letter dated 10th July 1987 from Government of India Ministry of Finance to various Agencies at Central and State
Level)
As you are no doubt aware, the Seventh Five Year Plan has been drawn up in the context of severe resource
constraints being faced by the Central and State Governments. The Plan document has, therefore, delineated a
framework of fiscal management to underpin the efforts to successfully implement the plan. The document has
suggested several steps to control public expenditure including:
a) Strengthening the procedures for the scrutiny of expenditure proposals and subjecting them to the discipline
of cost effectiveness analysis;
b) Administrative reforms to eliminate unnecessary work reduce overlap and simplify procedures;
c) Fuller utilization of the facilities already created through better maintenance adopting a cost effective approach in
public services;
d) Modification of the planning and the budgetary procedures so as to take in
e) Integrated view of developmental outlays regardless of whether they are on new schemes of the current Plan or on
the maintenance of schemes started in earlier Plans
f) Re-examination of the rationale lor various subsidies taking into account tlic possibility of leakages, Uneconomic status
of beneficiary groups and cost-benefit analysis of the subsidies.
g) Elimination of all Non-Plan support, including subsidies and Non- development and development expenditure.
It has accordingly been decided to adopt Zero Base Budgeting (ZDB) approach in the Central Government Departments with
effect from the Budget for 1987-88.
ZBB requires identification and sharpening of objectives examination of various alternative ways of achieving those
objectives, selecting the best alternative through cost-benefit and cost effectiveness analysis, prioritisation of objectives and
programmes switching of resources from programmes with lower priority to those with higher priority; and identification
and elimination of programmes which have outlived their utility^

In ZBB, a Ministry/Department or an organization is required to justify not only the new proposals and the funds therefore,
but also the on-going activities and the funds for them. In other words, provision for existing programmes are also required
to be justified in the budget rather than adding them in the budget as a matter of routine. As such, under the ZBB approach,
the existing programmes will not be treated as immutable but will be examined afresh as to their continued utility and
effectiveness thereby freeing resources for new programme.
ZBB is extended to help both in the judicious allocation of scarce resources at the national level, and in deriving the
optimum benefits out of the resources thus allocated. The objective is not To just cut the expenditure but to make public
expen-attune programmes more effective by a more purposive, allocation
of resources to various programs. If budgetary cuts become inevitable. and will provide a more logical basis for effecting
them as compared to adhoc and across the board cuts. an explanatory note of the concepts and procedures of ZBB as given in
academic literature is enclosed. We would, however, prefer to adopt the ZBB approach without placing undue emphasis on
the Jargon and without eating a mass of paper work.
It is not intended that as a result of the exercise a separate set of documents will be presented to Parliament. The preparation
and presentation of Performance budgets to the Parliament
along with Demands for grants of the respective Departments will continue as therefore. As you will readily agree, with the
adoption of ZBB approach, performance budget document can be further refined so as to increase its usefulness.
We are fully conscious of the fact that each Department will have to develop its own methodology for achieving the
objectives of the j ZBB. The finance Ministry will only act as a catalyst. have separately a Group of Financial Advisors and
officers of the Ministry of Finance, with Joint Secretary (Budget) as the convenor, which will function as the Central
Monitoring Group or introduction of ZBB. The Central Monitoring Group will only be an analytical and advisory group
which, whenever required will analyze the data received from various Ministries are putting up to higher authorities for
taking a final view on allocation of resources. It will also the core central for dissemination of knowledge and expertise on
the subject. You may tow constitute a Group of senior officers with the FA. as the convernor to Interact with the Central
Monitoring Group and at the same time ensure that the ZBB exercise undertaken is specially tailored to suit the culture and
requirements of Ministry/Department. This Group will review the existing programmes, both Plan and Non-Plan, with
reference to the basic objectives of the Seventh Plan including the development perspective towards the year 2000 outlined in
the plan document.
One of the advantages sought in ZBB approach is the involvement of top level officers in the budgetary process. Conversely, it
is also true that without their participation and support, the ZBB exercise would not produce the desired results. I would,
therefore, request you to Impress upon all your officers to actively participate In the ZBB exercise* While your F.A. may act as
the nodal point for this purpose, you will agree with me that the Introduction of ZBB cannot be left to the F.A. alone. It needs
your personal involvement and that of your senior colleagues.
Looking at the various steps Involved in ZBB, we are of the view that it may be Implemented in the best possible manner only by
the people who are actually administering/executing the various schemes/programmes/activities of your Depart* merit Hence
we recommend that no outside consultants need to be appointed for this purpose at this stage. We are however, planning to

hold the workshops & seminars, etc. for training the key officials of the Ministries on ZBB process. We shall let you know about
this in due course.
The Central Monitoring Group has prepared a model Questionnaire (Form A-Annexure) for seeking information on
their schemes / programmes /activities of the various ministries so that a meaningful review about usefulness and further
continuance could be undertaken. The form may be suitably modified to suit the requirement of your Department, It may.
However, be ensured that the basic objective of this questionnaire is not lost sight of. The various aspects covered In the
questionnaire may kindly be answered in their proper perspective. The proforma of another form (Form B-Annexure II) for
preparing a ranking of the various programmes in order of their-priority is also enclosed Programmes with smaller outlays
of, say, that a core
To just cut the expenditure but to make public expenditure programmes more effective by a more purposive, allocation of
resources to various programs. If budgetary cuts become inevitable. and will provide a more logical basis for effecting them as
compared to adhoc and across the board cuts. an explanatory note of the concepts and procedures of ZBB as given in
academic literature is enclosed. We would, however, prefer to adopt the ZBB approach without placing undue emphasis on
the Jargon and without eating a mass of paper work.
It is not intended that as a result of the exercise a separate set of documents will be presented to Parliament. The preparation
and presentation of Performance budgets to the Parliamentalong with Demands for grants of the respective Departments
will continue as therefore. As you will readily agree, with the adoption of ZBB approach, performance budget document can
be further refined so as to increase its usefulness.
We are fully conscious of the fact that each Department will have to develop its own methodology for achieving the
objectives of the j ZBB. The finance Ministry will only act as a catalyst. have separately a Group of Financial Advisors and
officers of the Ministry of Finance, with Joint Secretary (Budget) as the convenor, which will function as the Central
Monitoring Group or introduction of ZBB. The Central Monitoring Group will only be an analytical and advisory group
which, whenever required will analyze the data received from various Ministries •°r putting up to higher authorities for
taking a final view on allocation of resources. It will also *t a» the core central for dissemination of knowledge and expertise
on the subject. You may tow constitute a Group of senior officers with the FA. as the convernor to Interact with the Central
Monitoring Group and at the same time ensure that the ZBB exercise undertaken is specially tailored to suit the culture and
requirements of ^r Ministry/Department. This Group will review the existing programmes, both Plan and Non-Plan, with
reference to the basic objectives of the Seventh Plan including the development perspective towards the year 2000 outlined in
the plan document.
One of the advantages sought in ZBB approach is the involvement of top level officers in the budgetary process. Conversely, it
is also true that without their participation and support, the ZBB exercise would not produce the desired results. I would,
therefore, request you to Impress upon all your officers to actively participate In the ZBB exercise* While your F.A. may act as
the nodal point for this purpose, you will agree with me that the Introduction of ZBB cannot be left to the F.A. alone. It needs
your personal involvement and that of your senior colleagues.

Looking at the various steps Involved in ZBB, we are of the view that it may be Implemented in the best possible manner only by
the people who are actually administering/executing the various schemes/programmes/activities of your Depart* merit Hence
we recommend that no outside con* sultants need to be appointed for this purpose at this stage. We are however, planning to
hold the workshops & seminars, etc. for training the key officials of the Ministries on ZBB process. We shall let you know about
this in due course.
The Central Monitoring Group has prepared a model Questionnaire (Form A-Annexure) for seeking information on
their schemes / programmes /activities of the various ministries so that a meaningful review about usefulness and further
continuance could be undertaken. The form may be suitably modified to suit the requirement of your Department, It may.
However, be ensured that the basic objective of this questionnaire is not lost sight of. The various aspects covered In the
questionnaire may kindly be answered in their proper perspective. The proforma of another form (Form B-Annexure II) for
preparing a ranking of the various programmes in order of their-priority is also enclosed Programmes with smaller outlays
of, say, that a core Of rupees per year may be grouped together it may be kindly ensured that the total no. of groups or
programmes or a group of programmes for which the information is furnished does not become unwieldy.

ZBB FORMULATION PROCESS

EXPLANATORY NOTE
Zero Base Budgeting has been variously defined as:
i. An operating planning and budgeting process which required each manager to justify his entire budget request in
detail, and shifts the burden of proof to each manager to justify why he should spend any money. This procedure requires that
all activities and operations be identified in decision packages which will be evaluated and ranked in order of importance by
systematic analysis.
ii ZBB is a management process that provides for systematic consideration of all programmes and activities in con
junction with the formulation of budget requests and programme planning.
iii ZBB is a system whereby each governmental programme, regard of whether it is new or an existing programme,
must be justified in its entirely each time a new budget is formulated.
iv ZBB is a management tool... a method of efficient use of limited resource in the pursuit of specified goals. The goal, as
with any planning and budgeting process, is to identify the output desired,- and the Input resources required to obtain it. This
need not involve a reduction of expenditures. An increase, If It efficiently contributed to the attainment of the desired goal,
might be an alternative.

v. In the most literal sense, ZBB implies constructing a budget without any reference to what has gone before, based on a
fundamental reappraisal of purposes, methods, and resources.
vi. ZBB is a technique which complements and links the existing planning, budgeting and review processes. It identifies
alternative and efficient methods of utilizing limited resources in the effective attainment of selected benefits. It is a flexible
management approach which provides a credible rationale for reallocating resources by focusing on the systematic review
and Justification of the funding and performance levels of current programmes or activities.
Budget making exercise under ZBB involves the following
1) Identification of an organisation's structures, management, "Decision Units" and objectives.
2) Formulation and development of "Decision Packages".
3) Review and ranking/ pripritisation of decision packages.
4) Allocation of resources for the chosen

decision packages i.e. preparation of
the budget.
decisions on the amount of spending and the scope, direction or quality of work to be performed. The decision units are
ultimately the modules which will be assessed for their achievements under the ZBB.
Identification of decision units is the first step in ZBB. The location of decision units is very often a difficult
exercise and is a trade off between operational viability and achieving control of optimal resource allocation. It Is imperative
in the identification of decision units that there should be a complete knowledge about the organisation structure, its
management and objectives. This can, therefore, be done best by the Departments themselves. However, the identification of
decision units should be guided by the following broad parameters:
i) Decision units should be located where a particular activity/operation can have a meaningful identification and evaluation.
ii) The identification of the decision units should be carried by the information requirement of higher level managers.
iii) It should be ensured that the basic decision units selected are not of such a low level in the organisational structure as to
result in enormous amount of paper work and review. On the other hand, the decision unit should not be high as to prevent
easy access and discussion for meaningful review of the work being performed.
Decision Packages
A decision package is a budget request which should contain the following :
1) A description of the function or activity of the decision unit,
2) The goals and objectives of the various functions/activities of the unit.

3) Benefits to be derived from financing the activity/programme.
4) Relevance of the activity/programme to the overall objectives of the Organization/Department in the present context.
5) The consequences of its non-funding.
6) The projected/estimated cost of the package.
7) The yearly phasing of the proposed expenditure/project cost.
8) Alternative ways of performing the same activity or achieving the same objectives.
While there can be no hard and fast rule regarding the number of incremental decision packages which should be prepared for
different levels of funding and performance, at least three such decision packages corresponding to the minimum level, the
current level and the proposed level (provided it is different from the current level) should be prepared. The minimum level is
actually the 'grass roots funding level necessary to keep a programme alive. In other words, the minimum level corresponds
to that performance or funding level below which it is not feasible to continue a programme, activity or entity because no
constructive contribution can be made towards fulfilling its objective. In all circumstances the minimum level should be
below the current level unless it is clearly not feasible to operate below the current level. It would be appropriate at this point
to mention that the decision packages are self-contained budget requests. Various levels of decision packages have different
performance outputs.
Review and ranking of decision packages
Once the decision packages (budget requests) are developed, they are required to be reviewed and ranked in order
of priority. The completed decision packages are ranked initially by the decision unit manger who has developed the
decision packages. They are then sent up. wards through the management hierarchy where the decision packages are once
again review and I ranked along with the other decision unit pack ages at selected levels; the decision packers are |
consolidated again, bringing a broader perspective J at each level of review and ranking.
Zero Base Budgeting Questionnaire (To be filled separately for each programme/group of programmes)
Name of the programme/group of programmes.
What are the objectives of programmes?(To be specified in short, pithy phrases)

How are the objectives related to the goals and objectives specified in the Seventh Plan document for the Seventh Plan
period as well as for the 2000?
Why should the state objectives be achieved only through the instrument of public expenditure programmes?(The idea is to
see whether the same cannot be achieved through other instruments of public policy e.g. legal and administrative controls,
tax/subsidy mechanism, credit policy, promotion of voluntary efforts etc.)

What are the other departments/agencies funded by the | Central Government working to achieve the same objectives?
Please specify their budget allotments for the 1986-87. What mechanism exist to coordinate with them?
What are the programmes of other departments /agencies (whether. I funded by the Central Government or not) on whose
successful implementation depends the success of this programme? What mechanism exists to ensure their successful
implementation?
Would you like some changes in the existing organisational structure for effective implementation of this programme? If so,
please give your suggestions.
Would you like some changes In the exist in g systems and procedureswithin the government for taking
decision to implementation of this programme? if so, please give your suggestions.
Would you like some changes in the existing personnel management systems and practices (including recruit merit, training
and career development) in relation to implementation of this programme? If so please give your suggestions for improve-
ment.
Since inception (please specify the year) how many times has the implementation of this programme been evaluated? With
what result?
(note to be taken of the observations made by the Parliamentary Committees as well as the Comptroller and Auditor
General oj India).
Whether the programme is funded from external assistance; if so to what extent?

Whether the programme is the result of a statutory requirement; if so spell out the requirement?
Are there any factors (like natural Increase to the number of beneficiaries) which make it imperative to increase allotment of
funds to the programme in coming years?
Whether any norms have been fixed for regulating the expenditure on the programme or specific components there of ?
If additional allotment of funds, say, by 25%. is made for this programme, how would you expand the programme? How
soon can you expand? What will be the benefits flowing from such expansion?
If allotment of funds for this programme is cut, say, by 25%. how would you contract the programme? How soon can you
contract? What will be the adverse consequences of such contraction?
Any other Information that you consider relevant for taking a decision on the Budget allotment to the programme in the four
years ending 1989-90.
Budget Allotment for 1986-87 is given on next page.
[Type text] Page 32

What Is the break-up of the Budget allotment under the following heads.
a. Staff salaries, e c. (please specifythe number of s :aff)
b. Travel expenses(only tour/transfer and TA expenses to be given here, LTC expenses to be given under (a) above.
c. Office expenses
N.B.In respect of (a), (b) & (c)% please inclued information on autonomous agencies for which maintenance grants are given
by the Department.
d. Equipment
e. Materials and supplies
f. Maintenance expenses
g. Transfers to State and Union Territory governments (Please indi- m cate the pattern of financing)
h. Transfers to Public Enterprises.
i. Transfer to autonomous bodies (excluding maintenance grants included under (a),(b) and (c)
J Works Expenditure
(Please specify separately the allotment for works expenditure Included In the Budget of the executing agency e.g.
Central Public Works Department)
[Type text] Page 33

BIBILOGRAPHY
1) READERS VOLUME DEVOLOPE MANAGEMENT AND FINANCE.
2) FISCAL MANAGEMENT : ANWAR SHAH
[Type text] Page 34

Fiscal Management Techniques

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FISCAL MANAGEMENT TECHNIQUES

FISCAL MANAGEMENT TECHNIQUES

DEVOLOPEMENT MANAGEMENT AND FINANCE Page 2

Programme/Activity Classification: (Public Works Department)

Program me/Activity classification

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As an illustration, programme /activity classification' in a performance budget, say of Geological Survey of

1. Survey & Mapping

DEVOLOPEMENT MANAGEMENT AND FINANCE Page 4

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1. Missing Links of roads

Norms and Standards

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DEVOLOPEMENT MANAGEMENT AND FINANCE Page 7

DEVOLOPEMENT MANAGEMENT AND FINANCE Page 8

Decentralized Responsibility Structure and Delegations

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DEVOLOPEMENT MANAGEMENT AND FINANCE Page 10

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Reporting and Review of Performance

PLANNING PROGRAMMING AND BUDGETING SYSTEM (P.P.B.S)

DEVOLOPEMENT MANAGEMENT AND FINANCE Page 13

Development of basic skills;

Development of vocational and occupational skills;

Development of academic and professional skills; Library and community development;

General research (non allocable research); and General support.

Improving the education of the general population

Improving the education of the economically and socially disadvantaged

Improving the education of the physically and mentally handicapped.

DEVOLOPEMENT MANAGEMENT AND FINANCE Page 15

PPBS AND HOUSING FUNCTION

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SOME IMPORTANT ISSUES

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Projects, Activities & Functions

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• Costs and benefits.

b. nature and quantity of physical output of services.

c. costs, capital, operating and maintenance and revenues or benefits.

DEVOLOPEMENT MANAGEMENT AND FINANCE Page 19

1. PPBS Report Contents

i. Programme and financial plan (PFP)

ii. Programme Memoranda (PM)

The non-availability or lack of data.

The conceptual programme elusiveness of societal goals

The Inadequacy of the knowledge of effective means to achieve goals.

The failure to comprehend all possible alternatives.

The impossibility of separating factual from value elements.

The relative ineffectiveness of cost list analysis techniques so far developed.

DEVOLOPEMENT MANAGEMENT AND FINANCE Page 20

The likely uncollinyness of legislators on long term commitments especially financial.

Merits & Demerits

promises an efficient system once the technological requirements are met.

ZERO BASE BUDGETING TECHNIQUE

i) Establishes clear cut goals and objectives.

ii) Measures progress towards these goals and objectives.

iv) Displays potentials for further improvement.

Elements of Zero Base Budgeting

The decision package.

The Operational Steps

DEVOLOPEMENT MANAGEMENT AND FINANCE Page 22

Merits of Zero-Base Budgeting

Demerits of Zero Base Budgeting ;1