With Christmas now receding into the distance it’s time to start thinking about 2012/13 and how (if?) we can squeeze even more efficiencies out of NHS organisations. The usual approach is to simply roll the budgets over and then pester operational managers for CIPs, but in this week’s mail we look at another way of doing things…
Background to Zero Based Budgeting
Unlike the ‘roll over’ budgeting process that many Trusts currently employ Zero Based Budgeting (ZBB) starts with no costs factored into plans for next year. Therefore, all spending needs to be justified. This focuses attention on the actual resources required to support the work to be done rather than a percentage increase compared to the previous year.
It is essential that this process is a joint partnership involving the budget holder, the “customers” of the service, and finance. There needs to be clear support for the use of Zero Based Budgeting from the Board and Senior Management of the Trust. Other key requirements are strategies and plans to manage the potential concerns of staff that may arise as a result of changes in resource usage.
It is generally accepted practice that an initial pilot of a few discrete areas within an organisation should be undertaken. The Overhead and Indirect functions are those most suited to ZBB. It should be introduced in phases concentrating firstly on the less complex areas in order to build skills and experience. ZBB is most appropriate for activities that are truly discretionary.
The strategic objectives of the function should to be clearly defined – firstly levels of service to meet basic statutory requirements should be determined, then what is the Current Service Level. It needs a flexible approach which considers the relationship of service delivery by step changes.
After this the resources required to fulfil the objectives of the function at various service levels can be evaluated. This provides a ranking of benefits and costs which can then be used to decide the level of funding for the function.
Plans should be made for the management of the surplus resources which will arise from the radical reductions in some of the functions. Resistance to the ZBB process can often be mitigated by staff knowing that they can be redeployed and retrained.
Advantages of ZBB
- Zero Based Budgeting questions accepted beliefs, bringing a focus on value for money.
- It clearly establishes links between budgets and the combination of objectives and services.
- It is a partnership process involving operational mangers both as budget holders and “customer” of a function.
- It is an adaptive approach which can be changed according to circumstances.
- Through the partnership approach it enhances understanding, consensus and communications.
Disadvantages of ZBB
- The process requires substantial time and effort.
- It needs to be seen to be driven from the top of the organisation.
- There can be difficulties in identifying performance measures and criteria.
- ZBB can be an unsettling process for staff members and it requires careful people management.