zero based budgeting in isro

Zero Based Budgeting: A critical analysis on budgeting practice of ISRO Satellite Centre (ISAC) 2013

Christ University P a g e | 1

Zero Based Budgeting: A critical analysis on budgeting practice of

ISRO Satellite Centre (ISAC)

We might come closer to balancing the Budget if all of us lived closer to the

Commandments and the Golden Rule. -Ronald Reagan

1. INTRODUCTION

The Indian Space Research Organization (ISRO), have been making news for all the

good reasons for many of its recent successful lunch of satellites which was celebrating

its Ruby year on 10th

of May 2012 with a remarkable journey of 40 years into the time

space of space science and its allied technology and also reaching a milestone of 100th

space mission PSLV -C21 (Space Research Today, 2012). Space activities commenced

in India in 1963 when the Thumba Equatorial Rocket Launching Station (TERLS) was

set up under the stewardship of Vikram A.Sarabhai, the acknowledged father of the

Indian space programme (ISRO, 2012). Initially the programme was carried out by the

Department of Atomic Energy through the Indian National Committee for Space

Research, which was reconstituted in 1962 for that specific purpose and subsequently

transformed into the Indian Space Research Organization (ISRO). ISRO was charged

with the explicit mandate to promote the development and application of space

technology and space science for the socio-economic benefit of the nation (Ranjana Kaul

and Ram S. Jakhu, 2010)

Recognizing the critical importance of outer space as a tool for accelerating the

sustainable development of the country, successive Governments have made significant

financial allocations to the Department of Space (DOS) and to the ISRO for the

implementation of specific programmes. The Indian Space Programme, over the years,



has paved the way for creating cost-effective space infrastructure for the country in a

self-reliant manner and the economic and social benefits brought in by the application of

space technology to the national development have been significant. The Space

Programme is poised to play a pivotal role in the national development in the coming

years.

Although ISRO carries many successful titles in its belt, it works with a stringent budget.

To compare with that of NASA ISRO gets only about 3% of NASA annual budget (Dr K

Radha Krishnan, 2010). While in the financial year the budget of ISRO was raised to

$1.45 billion from $1.13 billion, the budget that of NASA was reduced to $18.448 billion

from 18,724 billion (Space News, 2011).This amplifies the need of proper budget

management marking the financial goals that are to be achieved and acting as a yardstick

for past performance.

In this research importance will be given over the study of Zero based budget, its

implications with respect to ISRO Satellite Centre and its influence towards other factors

that governs the financial spending. This research will be carried through investigating

the pervious budgets of ISRO and their follow-ups. It will be done through carrying out a

qualitative assessment through different approaches in collecting data, such as the

grounded theory practice, action research or actor-network theory. Forms of the data

collected can include interviews and group discussions, observation and reflection field

notes, various texts, pictures, and other materials.



1.1. Rationale for the Investigation

In 1968 an article by Peter Phyrr titled Zero-base budgeting (Phyrr P, 1970) generated

a great deal of interest and prompted him to expand his concept in much greater detail in

a book titled Zero-Base Budgeting (ZBB) (published in 1973 (Phyrr P, 1973). Since that

time, there has been a good deal of experimenting and actual implementation of ZBB in

the public sector of Indian economy. In India the government has encouraged adoption

of the concept in the in several public sectors and state governments have adopted ZBB

to greater or lesser degrees; Local governments, including county, city, school and

hospital districts have accepted or are considering ZBB as an alternative to their current

budget procedure(Singh, G.; Yadav P, 2011). The business oriented press has touted the

concept as the wave of the future in budgeting (William L. Boyd 1980). A plethora of

articles and news releases have appeared in the various trade journals. In the last few

years, zero-base budgeting has received much acclaim but little actual evaluation.

Although the practice of ZBB is slowly getting in its phase, the lack of research in the

field zero based budgeting have created a void in understanding and henceforth the

implementation of it in vast area of budget practice (Singh, G.; Yadav P, 2011). The

purpose of this article is to review the findings of various empirical studies concerned

with the applicability of zero-base budgeting in the public sector of Indian economy,

with respect to ISRO/ISAC. A comment follows the review concerning the need for a

rational and systematic approach to the problems of budgeting.

To analysis the functional areas of ISAC it will be important to know ISROs functional

areas which will be explained in this next section of this chapter.



1.2. Outline

Chapter 1 Introduction of the study

This chapter gives a brief detail on the background of the firm where the research will be

carried and also elaborate the needs, of the thesis. The literature review lays the

theoretical foundation on which the research will be carried. It provides evidence with

help of previous carried works to support the argument. Further research and also holds

the explanation of various terms pointing their importance in the research. This chapter

will represent major theories of budgeting, zero based budgeting and other related

literature works.

Chapter 2: Industry Profile:

This chapter gives the Introduction to ISRO/ISAC, its area of professional. Also the

company profile: a. A brief history of the ISRO. b. Year of establishment. Initial

investment, founders profile. Locations of ISRO group organizations, nature of initial

business of the group. & past business performance c. Present position of the

company/business group in terms of total investment, type/nature of businesses, total

turnover, total number of employees, product profile, subsidiary companies under the

same management, collaboration/joint ventures, performance as the major science and

development organization in the country, and certifications/achievements/awards won.

Chapter 3 Research Methodology

This chapter describes the methodology that was used to progress and authorise the aims

and objectives of this research. The research method implemented for this research

comprises the research design, selection of samples, data collection methods and the data

analysis procedures.



Chapter 4- Data analysis and results

This chapter contains the outcomes and discoveries of the primary research carried

through the qualitative research. These findings originate from the data of budgeting that

will be given by ISAC for research purpose. It also provides a summary of key findings

in an organized format.

Chapter 5- Summary of findings

This chapter lures together the findings of chapter 2 and 4. The theoretical implications

of the research are discussed in this chapter relating the primary findings that is profound

to heighten the structure of the research and its tenacity. Lastly an all-inclusive analysis

of the collected data is presented and summarized.

Chapter 6 Conclusions and Recommendations

This chapter winds up the research by drawing conclusions on the aspects of zero based

budgeting, financial management with concerning to ISAC.



1.3. Literature Review

1.3.1. Budget

Firstly, a discussion on this topic with a simple definition of budget will be given. In

short, budget can be defined as a quantitative economic plan made with regard to time.

Therefore, for something to be characterised as a budget it must comprise the quantities

of economic resources to be allocated and used, it has to be expressed in economic i.e.

monetary terms, it has to be a plan not a hope or a forecast but an authoritative

intention, and it must be made within a certain period of time (Harper, 1995, p. 318).

Only a plan that has such characteristics can be called a budget.

However, if a budget is looked upon in its wider context, it can be defined as a

management tool that puts executives in control of the financial health of their company.

It is an objective measure of the financial structure of companys operation and a tool

that forces management to be accountable in a structured and objective way. Budgets as

management tools by themselves are neither good nor bad. How managers administer

budgets is the key to their value. When administered wisely, budgets facilitate planning

and resource allocation and help to enumerate, itemize, dissect and examine all of the

products and services that a company offers to customers (Seer, 2000, p. 187). In short

and taken at its simplest level, a budget is a mathematical exercise, but in reality it is

much, much more than numbers on spread sheets, which is what following text will

definitely show.



1.3.2. History of budget

The English word budget stems from the French word bougette and the Latin word

bulga which was a leather bag or a large-sized purse which travellers in medieval

times hung on the saddle of their horse. The treasurers bougette was the predecessor

to the small leather case from which finance ministries even today in countries like Great

Britain and Holland present their yearly financial plan for the state. So after being used

to describe the word wallet and then state finances, the meaning of the word budget in

19th century slowly shifted to the financial plan itself, initially only for governments and

then later for private and legal entities (Hofstede, 1968, p. 19). It was only then that

budgets started to be considered as financial plans and not just as money bags.

The use of budgets as financial planning and control tools for business enterprises is

historically a rather young phenomenon. In the US, early budgetary principles in

companies were mostly derived from the budget techniques in government. The other

source of budgetary principles for business in the US was the Scientific Management

Movement, which in the years between 1911 and 1935 conquered the US industry. Many

historians agree that early budgeting systems can be seen as a logical extension of

Taylors Scientific Management from the shop floor to the total enterprise. However, it

was not until the depression years after 1930 that budget control in US companies started

to be implemented on a large-scale. Budgets with their focus on cost control simply

became a perfect management tool for that period of time (ibid., p. 20). In Europe the

idea of using budgets for business was firstly formulated by the French organization

pioneer Henri Fayol (1841-1925). There was, however, little application in practice.

Another practical stimulus came from the ideas of the Czech entrepreneur Thomas Bata

(1876-1925) who introduced the so-called departmental profit-and loss- control as a tool



for decentralizing his international shoe company into a federation of independently run

small businesses. Nevertheless, the main inducement for the development of budgets and

their implementation in European companies came from across the Atlantic in the years

following the Second World War (ibid., p. 21).

Companies like Du Pont and General Motors in the U.S., Siemens in Germany, and Saint

Gobain and Elctricit de France in France, which pioneered the M-form

(multidivisional) organizational structure in the 1920's, first started to use budgets to

support their rapid growth as they expanded into new products and markets. This was to

help them to reduce the complexity of managing multiple strategies (Hope, Fraser, 1997,

p. 20). The enormous diversity in the product markets served by these vertically

integrated corporations required new systems and measures to coordinate dispersed and

decentralized activities. In this kind of environment, budgets and ROI measure rightly

played a key role in permitting central management to coordinate, motivate and evaluate

the performance of their divisional managers, and perform a proper allocation of internal

capital and resources (Johnson, Kaplan, 1991, p. 11). However, it is was only in the

1960's that accountants started adding to budgets other functions (like management

performance evaluation and motivation) in addition to those functions for which they had

originally been devised planning and control (Hope, Fraser, 1999b, p. 50). In that

period, budgets became the central and most important activity within management

accounting or in the words of Horngren, Foster and Datar: the most widely used

accounting tool for planning and controlling organizations (2000, p. 178). This is

exactly how budgets have remained to this day. The only thing that has changed in the

meantime is the competitive environment in which todays companies operate and which

has provoked many discussions about budgets disadvantages and their alternatives,

some of which will be presented in later parts of this thesis.



1.3.3. Type of budget

A budget is not a unitary concept but varies from organization to organization. The basic

concept of budgeting involves estimating future performance, comparing actual results

with the estimate, and analysing the differences between them. Factors that are relevant

in determining the type or style of an organizations budget and its effects include: the

type of organization, the leadership style, personalities of people affected by the budget,

the method of preparation, and the desired results of the budgeting process (Cherrington,

Cherrington, 1973, p. 226).

In general, budgets can be classified into two primary categories (Cohen, Robbins,

Young, 1994, p. 171):

1) Operating budgets

Operating budgets consist of plans for all those activities that make up the normal

operations of the firm. The main components of the firms operating budget include

sales, production, inventory, materials, labour, overheads and R&D budgets.

2) Financial budgets

Financial budgets are used to control the financial aspects of the business. In effect, these

budgets reveal the influence of the operating budgets on the firms financial position and

earnings potential. They include a cash budget, capital expenditures budget and pro

forma balance sheet and income statement.

In figure 1, all major budgets that can be used in a typical company and how they are

linked and interconnected within the larger system of the master budget can be seen. This

confirms what has already been said about the budgeting process that individual

budgets are dependent on one another which requires that they be prepared in a

hierarchical manner.



Figure 1: All types of budgets involved in a typical organization



Except for the usual division of companies budgets into operational and financial,

budgets can also be differentiated based on expenditure authority. Using this approach,

two major groups of budgets can be defined (Kemp, Dunbar, 2003, p. 3):

a) Line-item budgets

These are budgets where the name of each line is set, as is the amount of money that can

be spent on each item. If one works within a line-item budget, one cannot overspend a

specific line item and then compensate this with savings on other line (or vice versa).

The authority to move money from one line item to another must be granted at a higher

level.

b) Block budgets

These are the opposites of line-item budgets. Here a block of money is given. The details

of the budget are presented but, later on, if one wants to spend more money on one item

and less on another, one is free to do so. As long as the block of money is not overspent

before the end of the year, the budget remains under control



1.3.4. Budgeting

Budgeting may be defined quite simply as the process of compiling budgets and

subsequently adhering to them as closely as possible (Maitland, 2000, p. 1). It is a

process that turns managers perspectives forward. Thereby, looking to the future and

planning, managers are able to anticipate and correct potential problems before they

arise. This system allows managers to focus on exploiting opportunities instead of,

figuratively speaking, and fighting fires. In this way the system provides sustainability to

business processes within the company. It is a process of the utmost importance to

management. In the words of one observer; few businesses plan to fail, but many of

those that collapse failed to plan (Horngren, Foster, Datar, 2000, p. 178).

The purpose of budgeting is that it gives management an idea of how well a company is

meeting their income goals, whether or not expenses are in line with predicted levels,

and how well controls are working. Properly used, budgeting can and should increase

profits, reduce unnecessary spending, and clearly define how immediate steps can be

taken to expand markets (Thomsett, 1988, p. 5). In order to achieve this, management

needs to build a budgeting system, the major objectives of which are to (Viscione, 1984,

p. 42):

1. Set acceptable targets for revenues and expenses.

2. Increase the likelihood that targets will be reached.

3. Provide time and opportunity to formulate and evaluate options should obstacles arise.

Since budgeting as a process is very complex, it comes as no surprise that budgets are

trying to fulfil numerous functions such as (Harper, 1995, p. 321, and Churchill, 1984, p.

162):



a) Planning a budget establishes a plan of action that enables management to know in

advance the amounts and timing of the production factors required to meet desired levels

of sales.

b) Controlling a budget can be used to help an organization reach its objectives by

ensuring that each of the individual steps are taken as planned.

c) Coordinating a budget is where all the financial components of an organization -

individual units, divisions, and departments - are assembled into a coherent master

picture that expresses the organizations overall operational objectives and strategic

goals.

d) Communicating by publishing the budget, management explicitly informs its

subordinates as to what exactly they must be doing and what other parts of the

organization will be doing. A budget is designed to give managers a clear understanding

of the companys financial goals, from expected cost savings to targeted revenues.

e) Instructing a budget is often as much an executive order as an organizational plans

since it lays down what must be done. It may, therefore, be regarded by subordinates as a

management instruction.

f) Authorising if a budget is a management instruction then conversely it is an

authorisation to take budgeted action.

g) Motivating in that a budget sets a target for the different members of the

organization so that it can act to motivate them to try and attain their budgeted targets.

h) Performance measuring - by providing a benchmark against which actual performance

can be measured, a budget clearly plays a crucial role in the important task of

performance measurement.



i) Decision-making it should never be assumed that a budget is set in concrete and

when changing course a well-designed budget is a very useful tool in evaluating the

consequences of a proposed alternative since the effect of any change can be traced

throughout the entire organization.

j) Delegating budgets delegate responsibility to the managers who assume authority for

a specified set of resources and activities. In this way budgets emphasise even more the

existing organizational structure within the company.

k) Educating the educating effect of a budget is perhaps most evident when the process

is introduced in a company. Operating managers learn not only the technical aspects of

budgeting but also how the company functions and how their business units interact with

others.

l) Better management of subordinates a budget enhances the skills of operating

managers not only by educating them about how the company functions, but also by

giving them the opportunity to manage their subordinates in a more professional manner.

The requirements that all these functions impose upon a budget make it difficult for one

system to meet them all. It is precisely because these requirements differ, that role

conflicts in budgeting system arise. These need to be appropriately dealt with so that

dysfunctional behaviour like budget padding or other damaging budget games for the

company do not appear. Since there are three major roles for any budgeting system, at

least three conflicts may arise (Barrett, Fraser, 1977, p. 141)



1.3.5. Types of budgeting

a. Traditional Incremental Budgeting

The traditional incremental budgeting does not analyse all planned expenditures with the

same intensity. The changes from previous year's expenditures in the proposed budget

for the next year which is usually increments, hence the name incremental budgeting but

of course, decrements from previous years are also possible, receive the most attention.

The expenditures that were already present in last year's budget will not be thoroughly

analysed.

According to Wildawsky and Caiden (1997, pp. 45-49) the concept of a base is central to

incremental budgeting. The base is the general expectation that programs will be carried

out on or close to the current level of expenditures. The budget for the next year is thus

largely determined by the budget of the last year. For that reason, it is very important for

an agency seeking a long-term increase in its budget to achieve the inclusion of a new

project in its base, as this will then be considered as an accepted part of what will be

done. The authors compare the budget with an iceberg from which the largest part of it

lies below the surface outside of anybody's control. The rationale for the lack of thorough

annual review is that because last year's expenditures were already justified, recurring

expenditures do not need annual review given the relative stability in the overall

environment of the agency. This approach also assumes that the analysts, decision-

makers and budgeters do not enough time and mental energy to analyse and justify all

planned expenditures every year. By leaving large portions of the budget out of a

thorough annual analysis, incremental budgeting demands less time and energy than

budgeting by comprehensive analysis. Another reason is the number of long-term

commitments in the budget: mandatory programs (entitlements), such as veteran's



pensions, cannot simply be eliminated at will. These commitments are legally binding

and must be met regardless of circumstances. Therefore, they do not need annual

revision. After these long-term commitments have been paid for, there is often only a

small percentage of the budget left for anybody's discretion.

Another linked concept is the idea of fair share. It means not only the established base,

but also the (common) expectation that an agency should receive a proportion of funds as

compared to others, that must be increased or decreased over the base depending on

circumstances. In any case history plays a big role, because it largely determines the base

and the fair share of an agency.

The advantage of incremental budgeting is that it simplifies calculations and decision-

making, because only changes from the previous year must be considered and

negotiated, thus saving considerable time and energy and decreasing conflict over

expenditures, because the last year's share of the budget becomes the base and does not

need thorough annual re-justification.

The disadvantage of incremental budgeting is that past expenditures may not necessarily

justify their continuation in the changing conditions of the future. This means a waste of

the resources. The next budgeting approach -the ZBB -tries to address this problem.

b. Zero-Based Budgeting (ZBB)

Hyde and Shafritz (1978, pp. 21 8-219) note that zero-based budgeting refers to the

budgeting process that is first and foremost a rejection of the incremental decision-

making model of budgeting. It demands a rejustification of the entire budget submission.

It focuses on the concept of priorities, which is more than an elaboration of alternatives.



It reflects a concern that the governments should do things that are the most important of

all of the things they could do.

In other words, the ZBB states that all programs and expenditures must be reviewed

every year, the mere fact that a program or expenditure was there last year provides no

justification that it should be continued in the next year. Premchand (1983, pp. 334-335)

refers to (probably) the first experiment with ZBB in the Department of Agriculture in

1962 that tried to fully implement the concept. The practical experience, however,

revealed some problems. The approach required excessive paper work and brought little

or no change in the size or direction of the budget. As a result, the experience in 1962

failed. However, the ZBB was used in the federal level from 1977- 198 1. This time the

concept was more elaborate. Premchand also gives the major features of ZBB:

Examination of programs at various levels of resource allocation and performance..

Objectives have to be formulated for each agency The activities of each agency are

converted into decision packages, which are developed to show performance at various

resource levels such as minimum, intermediate, current, and enhancement

levels, and The decision packages are then evaluated and arranged at each level of

management in ranking order The ranking order enables the agencies to define the

minimum effort and indicate the incremental levels of effort above the minimum of each

program. Those levels are then ranked in a decreasing order and a cut-off point is

established below which the items were not funded. Wildawsky and Caiden (1997, p.

270) see ZBB as manifesting vertical comprehensiveness in contrast to horizontal

comprehensiveness of PPB6: Every year alternative expenditure levels from base zero

are considered. PPB compares programs, while ZBB compares alternative funding levels

of the same program.



MacManus (1998, pp. 257-260) refers to both advantages and disadvantages of the ZBB.

The proponents like its attack on incrementalism, low-priority programs and its efforts to

force government officials to engage in a more rational analysis of alternative service

delivery mechanisms and levels. They also like the bottom-up rather than program

budgeting top-down approach.

The opponents of ZBB complain about the amount of time and resources it takes. They

argue that the amount of paperwork needed for a single program's decision packages

makes it improbable that all decision packages can be thoroughly analysed and ranked by

the policymakers. They also note that ZBB does not consider that fact that certain

programs are very unlikely to be eliminated while others have little or no chance of

getting funded. There is also a lot of discussion about whether past knowledge and

history should be eliminated in decision-making. Wildawsky and Caiden (1997, p. 271)

are quite sceptical about eliminating the past in ZBB. They wrote:

To say that a budgetary process is a historical is to conclude that the sources of error

multiply while the chances of correcting mistake decrease: If history is abolished,

nothing is ever settled. Old quarrels resurface as new conflicts. As mistrust grows with

conflict, willingness to admit (and hence to correct) the error diminishes. Doing without

the history is a little like abolishing memory -momentarily convenient, perhaps, but

ultimately embarrassing. They also noted that the ZBB did not exist in its pure form in

any place. When 80- 90% of the budget becomes the base and only the rest is annually

reviewed that is very close to incremental budgeting.

The difficulties and limitations of ZBB have resulted in creating a hybrid or target-based-

budgeting.



c. Target-Based Budgeting (TBB)

MacManus (1998, pp. 257-260) refers to this type of budgeting as incorporating the most

attractive elements of the ZBB or the ranking of funding alternatives, and using cost-

benefit estimates for different budget parameters. TBB recognizes that certain programs

are likely to be funded in most cases and therefore do not need much annual scrutiny.

Under TBB each organizational unit will be asked to develop two requests. The First is

activities for the target budget (funding level pre-established by the budget office). The

second is the others that will be funded given additional resources. All items of the

wish-list are ranked in terms of priority.

The advantage of TBB is reduced paperwork, because not all programs must be

presented in terms of decision packages. Since the target-base can easily be shifted, this

increases its responsiveness to changing conditions and increases the ability of program

managers to use their judgment in resource allocation. However, the flexibility of TBB

can also be its disadvantage as it allows irresponsible managers to include their pet

projects into the base to protect them from review.

The incremental budgeting and ZBB are the basic budgeting approaches. The other

budgeting types, line item budgeting, performance budgeting and program/mission

budgeting, consider resource allocation incrementally, from base zero or use a

combination of these two approaches. These other types of budgeting will be described

in the following below.

d. Line-Item Budgeting

The line-item budget concentrates on objects of expenditures, i.e., the items that are

purchased rather on the purposes for which they are bought. They are presented to the



government as a whole and also to individual agencies and organizations. This has

historically been the most common budget format. The most important skills with this

type of budget were those of accountants. According to MacManus (1998, p. 253) this

budget type is the oldest devised in the twentieth century. The examples of classes of

expenditures include personal services, supplies, travel and utilities. These classes can

further be broken down into sub-classes. For example personnel services can be broken

down into salaries, wages, overtime and fringe benefits. Giving separate codes to

individual accounts in the budget allows further classification.

The line-item budget format and incremental budgeting go hand-in-hand. Although

incremental budgeting does not necessarily always use the line-item format, when the

line-item format is used as the principal budget format, its accounts are most often

analysed and justified incrementally. Schick (1978, pp. 49-53) notes that the line- item

budget is well suited for the first of the three major functions of budgeting: control7. The

control orientation deals with a relatively narrow range of objectives.

MacManus (1998, p. 253) refers to advantages and disadvantages of line-item budgets.

The biggest advantage of the line-item format is its simplicity. It is easy to understand

and use, especially when the information is presented by organizational units such as

departments or divisions, or freestanding projects. The format promotes year-to- year

comparisons, especially in terms of percentages. There has been much criticism against

inadequate budget structures because of these contradictory goals, but he is convinced

that just because of these multiple goals the traditional budgeting is inferior for most

purposes, but yet superior over all.

These shortcomings of the line item budgeting have caused the emergence of other types

of budgeting, especially performance and program/mission budgeting and ZBB. The



description of ZBB was already given above. The remaining major budgeting types will

be described next.

e. Performance Budgeting

Because of conceptual confusion, it is not clear when performance budgeting started.

MacManus (1998, p. 260) mentions several options ranging from the 1910s to 1949

when the Hoover Commission issued its report regarding the deficiencies of traditional

control- and accounting-oriented budgeting.

Hyde and Shafritz (1978, pp. 78-79) propose a general definition of performance

budgeting and contrast it to program budgeting: Performance budgeting presents purpose

and objectives for which funds are being allocated, examines costs of programs and

activities established to meet these objectives, and identifies and analyses quantitative

data measuring work performed and accomplishments. In performance budgeting,

programs are linked to the various higher levels of an organization and serve as labels

that encompass and structure the subordinate performance units. .Overall the

performance budgeting tends to be retrospective -focusing on previous accomplishments

-while program budgeting tends to be forward looking -involving policy planning and

forecasts.

This definition is consistent with Schick's (1978, pp. 54-59) theory of three functions of

budgeting: control, management and planning. According to this theory, performance

budgeting would be most suitable for the second -management -orientation of the

budgeting. It would facilitate the efficient performance of fixed prescribed activities. Its

focus is on the details. In performance budgeting, the work and activities are treated as

an ends in themselves. Unlike in program budgeting, the work and activities relate to the

functions and work of a concrete operating unit. Therefore their classification is usually



done along organizational lines. Thus, this classification is most useful for an

administrator or manager who has to organize the daily operations of an organization.

f. Program Budgeting

It seems that the essence of program budgeting can best be explained by contrasting it

with the other types of budgeting. Using Schick's (1978) classification mentioned above,

the program budgeting assumes the primacy of the third function a budget can have or

the planning function. In the context of budgeting, planning means the determination of

objectives, the evaluating of alternative courses of action and the authorization of

selected programs. A planning orientation focuses on the broadest range of issues. These

are governmental policies and their link to particular expenditure choices, how programs

should be assessed and the criteria on the basis of which they should be created or

terminated. Unlike in performance budgeting where the objective is fixed, the objective

itself is a variable in program budgeting. The analysis of existing programs may lead to a

statement of new objectives and a termination of old ones. Program budgeting focuses on

expenditure aggregates, the details matter only when they contribute to the analysis of

the total. Whereas performance budgeting used the tools of scientific management and

cost accounting, program budgeting uses techniques from systems analysis and

economics. In performance budgeting, the focus is on fulfilling the given objectives at

least cost. In program budgeting, the focus is on allocating resources

Wildawsky and Caiden (1997, p. 270) give the distinction between program budgeting

and ZBB. While ZBB promotes vertical comprehensiveness, the same programs are

analysed at different funding levels. Program budgeting promotes horizontal

comprehensiveness when comparing different programs.



g. Planning, Programming and Budgeting System (PPBS)

In very general terms, the PPBS begin with determining national interests and threats to

those interests. A strategy is then developed to encounter the threats and defend the

interests. Then the programs are developed to fulfil the broad goals or missions of the

strategy. The programs are structured in a manner that facilitates resource allocation

between and within them. The budget is just the expression of the programs in financial

terms as used by the legislature. Programming is thus the link that unites plans with

budgets. Contrary to misconceptions, the goal of the PPBS is not to make decisions, but

just packaging information for top-level decision-makers in the manner that they could

make informed decisions.

h. Missions and Mission Budgeting

There is considerably confusion about what a mission is. The DoD defines a mission as:

The task, together with the purpose, that clearly indicates the action to be taken and the

reason there for The NATO definition is similar: A clear, concise statement of the task of

the command and its purpose. However these definitions are so general that they allow a

wide range of interpretations. In general usage, a mission could thus be synonymous with

task, objective or purpose. Both the military forces and the civilian sector of the

government have missions. The military strategy gives major missions to the forces.

However, these missions are general in nature. There could also be other, more detailed

missions. The broad missions can be taken from the strategy, but at the same time, even

the smallest military unit must have a clear purpose, a mission or missions.



1.3.6. Budgeting process

The process of budgeting generally involves an iterative cycle which moves between

targets of desirable performance and estimates of feasible performance until there is,

hopefully, convergence to a plan which is both feasible and acceptable (Emmanuel,

Otley, Merchant, 1990, p. 31). Alternatively, if we look beyond many details and

iterations of the usual budgeting process we can see that there is a simple universally

applicable budgeting process, the phases of which can be described in the following

manner (Finney, 1994, p. 16):

1. Budget forms and instructions are distributed to all managers.

2. The budget forms are filled out and submitted.

3. The individual budgets are transformed into appropriate budgeting/accounting terms

and consolidated into one overall company budget.

4. The budget is reviewed, modified as necessary, and approved.

5. The final budget is then used throughout the year to control and measure the

organization.

The inevitable dependence of individual budgets on one another requires that budgets be

prepared in a hierarchical manner. Figure 2 indicates a common hierarchical form of the

budgeting process together with the necessary data flow between particular budgets and

phases of their making. This picture shows that despite having only a few general phases,

the budgeting process, due to its linearity and iteration loop, are in fact a very complex

and time consuming process.



Figure 2: Common hierarchical form of the budgeting process

Since it is so complex and important, the budgeting process requires lots of decision

making on the particular choices that developers of budgets have at their disposal.

Churchill (1984, p. 151) has provided a list of eight budget choices that managers have to

be concerned with when setting up the budgeting system. Thereby, these concerns vary

according to whether the company intends to use its budgets primarily for planning or for

control. These budget choices are:

1. Whether it is to be prepared from the bottom-up or top-down,

2. How it is to be implemented,

3. How the budget process is linked to the strategic planning process,

4. Whether it should be a rolling budget and how often it should be revised,



5. Whether performance should be evaluated against the original budget or the one

relating to the actual activity level of the organization,

6. Whether compensation/bonuses should be based on budgeted performance,

7. What budget evaluation criteria should be used, and

8. What degree of ''stretch'' should be incorporated into the budget?

In general, accounting theory suggests that large companies should be concerned more

with operational efficiency and emphasize coordination and control aspects of budgets,

while smaller innovative firms should concentrate more on the planning aspects of their

budgets. Since the first budget choice about the process used to create the budget is very

important, these particular methods will be elaborated on in more detail. Generally,

managements choices on how to start creating budgets fall into one of three major

approaches (Rasmussen, Ichors, 2000, p. 19)

a. Top-down budgeting process

The top-down approach of budgeting means that upper management completes the

budgeting process with minimal involvement from the management of individual

operating units or departments. The levels beneath headquarters level receive the budget

amounts from the top and they are expected to adhere to these given amounts.

Individual operating units have very little, if any, input into the determination of the

budget amounts. 2. Bottom-up

b. Bottom-up budgeting process

With the bottom-up approach the budget is established at the bottom levels of the

organization at the operating unit, departmental or cost/profit centre level and then



brought up to the corporate level. Guidelines and targets are set at the corporate level, but

specific amounts and budgeted account balances are not passed down to the individual

departments. Rather, these entities are given the freedom to create their own budgets at

the local level.

c. Top-down/Bottom-up budgeting process

A top-down/bottom-up approach combines and balances the best elements of the two

approaches. This approach allows input from lower and upper management into the

model. The budget process becomes collaboration between lower and top management

rather than a one-way exercise. In the combined approach, lower management submits

the budget to upper management and then upper management modifies the submitted

budget to reflect the operational knowledge that they have.



1.4. Zero Base Budgeting

1.4.1. Origin of the method and its main authors

Modern zero-base budgeting (ZBB) methodology was developed by Peter A. Pyhrr for

implementation at Texas Instruments in 1969. Pyhrr advocated a budgeting system

where managers need to build each years budget from the ground up, building a case for

their spending as if no baseline exists start from zero, and present their requests for

appropriations in such a fashion that all funds can be allocated on the basis of

cost/benefit or some similar kind of evaluative analysis. This was in total contrast to the

traditional budgeting process which allowed managers to start with last years

expenditures and add a percent for inflation to come up with next years budget, making

them justify only those incremental increases while automatically accepting current

levels of spending without question (Suver, Brown, 1977, p. 77).

The focuses of zero-base budgeting process are two basic questions: Are the current

activities efficient and effective? and Should current activities be eliminated or

reduced to fund higher-priority or new programs? ZBB is trying to find answers to these

questions by cooperating with the most management techniques; ZBB concept was not

entirely new when Pyhrr introduced it at TI. The US Department of Agriculture had

begun using a ground up budgeting technique in 1962, while as early as 1924, E.

Hilton Young advocated re-justifying budget programs annually (Burrows, Syme, 2000,

p. 227) using the decision-package ranking process. This process provides management

with an operating tool to evaluate and allocate its resources effectively and efficiently,

and provides the individual manager with a mechanism for identifying, evaluating, and

communicating his/her activities and alternatives to higher levels of management (Pyhrr,

1977, p. 1).



1.4.2. Main ideas of the method

The zero-base approach requires each organization to evaluate and review all its

programs and activities systematically on the basis of performance output as well as

costs, to emphasize managerial decision making first and numbers-oriented budgets

second, and to increase the analysis of allocation alternatives. Although management

approaches to the adoption of ZBB differ among organizations since the process must be

adapted to fit the specific needs of each user, the basic steps to effective ZBB can still be

identified (Pyhrr, 1976, p. 7):

a. Identify decision units.

b. Describe each decision unit as a decision package.

c. Evaluate and rank all these packages by cost/benefit analysis to develop a budget

request and profit and loss account.

d. Allocate resources accordingly.

ZBB starts with the creation of decision packages which are the building blocks of ZBB.

The decision package is a document that identifies and describes a specific activity in

such a manner that management can; a) evaluate it and rank it against other activities

competing for the same or similar limited resources and b) decide whether to approve it

or disapprove it. Each package includes a statement of the goals of the activity, the

program by which the goals are to be achieved, the benefits expected from the program,

the alternatives to the program, the consequences of not approving the package, and the

expenditures of funds and personnel the activity requires. There are two basic types of

decision packages (Pyhrr, 1970, p. 113):

1. Mutually exclusive packages identify alternative means for performing the same

function.

2. Incremental packages reflect different levels of effort that may be expended on a

specific function.



Figure 3: The detailed process of decision packages sources: (ibid., p. 114):



There should be at least three decision-packages for each decision-unit, though there

could be as many as ten or even more. The three elementary categories of decision-

packages are presented below. More than one decision package could be presented for

each category.

a. Base package. This type of package meets only the most fundamental service

needs of the decision units clientele and represents the minimum level of funding

needed for the units services to remain viable. There could be multiple base packages,

each addressing a different way to provide the base service. This represents an important

departure from incremental budgeting in that an incremental budget never considers what

the absolute minimum level of funding a program can survive on is. Rather, the current

level of spending is usually considered a sort of de facto minimum.

b. Current service package. This type describes what it takes to continue the level of

service currently provided to the units clientele. The difference between the base

package and the current service level may be expressed by multiple decision packages,

with each package representing one aspect of what it takes to get from base funding to

the current service level. There could also be different decision packages describing

different means for achieving the same service level.

c. Enhanced package. This category addresses resource required to expand service

beyond current levels. There could be any number of enhanced packages.

Each manager takes his/her areas forecasted expense level for the current year, identifies

the activities creating this expense, and calculates the costs for each activity. Once the

manager has formulated his/her preliminary list of decision packages and has received

the formalized set of assumptions about next years operations, she/he translates the

packages into business-as-usual packages for the upcoming year.



The manager then develops his/her final set of decision packages from his/her business

as- usual packages by segmenting each of them into mutually exclusive and incremental

packages wherever possible and noting the discarded alternatives. When determining

incremental packages, the manager must establish a minimum level of effort, which must

be below the current level of operation, and then identify additional levels or increments

as separate decision packages.

Finally, the manager should identify all the new activities in his/her area for the

upcoming year, develop the decision packages that handle them, and attach them to

his/her final set.

The identification and evaluation of different levels of effort represent the two most

difficult aspect of the zero-base analysis, yet they are the key elements of the process. By

identifying a minimum level of effort, plus additional increments as separate decision

packages, each manager presents the following alternatives for top managements

decision making (Pyhrr, 1976, p. 9):

- eliminate the operation,

- reduce the level of funding,

- maintain the same level of effort, or- increase levels of funding and performance.

The second important phase of ZBB is the ranking process. This technique allows

management to allocate its limited resources by listing all the packages identified in

order of decreasing benefit to the company. It also helps management to identify the

benefits to be gained at each level of expenditure and to study the consequences of not

approving additional decision packages ranked below that expenditure level. The process

itself follows a hierarchical structure of the company where at each level the decision

packages are reviewed, ranked and consolidated, and then forwarded to the next higher



organizational level for the same procedure all the way to the top. The organizations

final budget equals the sum of the budgets of those decision packages accepted for

funding (Pyhrr, 1977, p. 6).

Figure 4: The participative nature of the ZBB process is illustrated in the following

In order to reduce the number of packages to be reviewed in detail by successively

higher levels of management and to concentrate top managements attention on the lower

ranked activities, a cut-off expense line should be established at each organizational

level. In this way, management can briefly review packages above the cut-off line while

at the same time can devote most of the available time to decision packages below the

line which are then studied in detail and ranked. The ability to achieve a list of ranked

packages at any given organizational level allows management to evaluate the

desirability of various expenditure levels throughout the budgeting process. Also, this



ranking list provides management with a reference point to be used during the operating

year to identify the activities to be reduced or expanded if allowable expenditure levels

change or if the organization is over or under budget during the year (Pyhrr, 1970, p.

116).

If the complete ZBB process is contemplated, it can be said that it is a top-down, bottom-

up approach to budgeting, which requires the participation of managers at all levels

within the organizational hierarchy.

To sum up, it can be said that the purpose of the ZBB process is to help management

evaluate expenditures and make trade-offs among current operations, development

needs, and profits for top management decision making and allocation of resources

(Pyhrr, 1976, p. 6).



1.4.3. Advantages and disadvantages of ZBB

Advantages of zero-base budgeting:

- Properly carried out, it should result in a more efficient allocation of resources to

activities and departments.

- ZBB focuses attention on value for money and makes explicit the relationship between

the input of resources and the output benefits.

- It develops a questioning attitude and makes it easier to identify inefficient, obsolete or

less cost-effective operations.

- ZBB process leads to greater staff and management knowledge of the operations and

activities of the organization and can increase motivation.

- It is a systematic way of challenging the status quo and obliges the organization to

examine alternative activities and existing costs behaviour patterns and expenditure

levels.

Disadvantages of zero-base budgeting:

- It is a time consuming process which can generate volumes of paper work.

- There is a considerable management skill required in both drawing up decision

packages and in the ranking process.

- ZBB might be perceived as an implied threat to existing programs.

- There are considerable problems in ranking packages and there are inevitably many

subjective judgements.

- The thought of creating a budget from scratch causes considerable resistance if support

groups and training programs are not in place.



1.4.4. Practical use of ZBB

Zero-base budgeting finds its main use in areas where expenditures are not determined

directly by manufacturing operations themselves in areas, that is, where the manager

has the discretion to choose between different activities (and between different levels of

activity) having different direct costs and benefits. These ordinarily include marketing,

finance, quality control, maintenance, production planning, engineering, R&D,

personnel, data processing, and so on (Pyhrr, 1970, p. 112).

Due to the large amount of time that it takes to prepare ZBB, it is suggested that it should

be used as a short-term (usually one year) budgeting method which could be selectively

applied on a rolling basis throughout the organization. In many cases, ZBB has been

used in situations where cost stabilization or control, or even cost reduction was

necessary, though most of the benefits that users of ZBB reported have been achieved in

reallocating funds and reassigning personnel (Dean, Cowen, 1979a, p. 56).



1.5. Article reviews on ZBB

1. Broadnax, Walter D

Zero-base budgeting: new directions for the bureaucracy? The Bureaucrat, 6:56-66,

Spring 1977.

Mr. Broadnax pegs taxpayer resistance to inefficient government and legislative

executive branch concern over the uncontrollable portion of the Federal budget as the

motivating factors behind zero base budgeting (ZBB) proposals. He gives an overview of

both ZBB and sunset legislation. Potential problems in implementing ZBB in &e

bureaucracy are cited. For example, although the Executive Branch can recommend that

programs be discontinued, Congress controls the purse strings Mr. Broadnax also points

out that ZBB was developed and tested in the private sector where maximizing profits is

&e bottom line in establishing priorities. However, government workers are not

motivated by the profit motive in setting priorities, and they provide services that the

private sector is unable to provide. Therefore, it will not be as simple to motivate

government workers to set ZBB priorities as it was in the private sector. The

implementation of ZBB in Georgia, for example, resulted in no significant reallocation

of resources are the other fear of ZBB opponents is increased paperwork. On the positive

side, some advantages of ZBB are that it proves the quality of management information,

forces management to clearly state its goals, and decreases bureaucratic ambiguity.



2. Pyhrr, Peter A

Zero-base budgeting: where to use it and how to begin. S.A.M. Advanced

Management Journal, v. 41, no. 3:4-14, Summer 1976.

Zero-base budgeting is primarily a management tool rather than an accounting method. It

is applicable in discretionary programs where dost benefit analysis can be applied. From

identifying decision units to allocating resources on the basis of cost-benefit it analysis

applied to each decision unit. ZBB necessitates a task force of operating and financial

managers which must design the process to fit the organization, work with managers at

all levels involved with the process, and finally evaluate and revise the ZBB process.

3. Stonich, Paul J

Zero base planning--a management tool. Managerial Planning, July/Aug. 1976: 1-4.

Zero-base planning is a tool that helps cost centre managers analyse operations and

allocate funds better. Steps involved include the proper identification and analysis. Of

decision units, allocation of critical resources to appropriate activities, and preparation of

detailed budgets. Implementation must include designing the system to meet each

organization's individual needs, opening communication lines .among managers involved

in the decision unit process, and providing adequate training to managers. Aero-base

planning through a task force that can be responsible for the steps involved in

successfully implementing the new method. Since the concept of zero-base is

threatening too many managers, In addition, it is probably best to administer.



4. Stonich, Paul J. and Frederick W. Harvey

The new look for budgeting: zero-base planning. Today's Manager, May/June 1976,

p. 13-16.

Zero-base planning is different in both conceptual and procedural ways from usual

budgeting methods. ZBB starts from no base and treats discrete functions or activities

just as it would a brand new operation. It requires consideration of the organization's

purpose, facilitates the identification of alternative means of accomplishing the purpose,

and requires the identification of different increments of service. The article targets the

decision unit increments aspect of ZBB: activities and costs over the preceding level. A

matching process of services and dollars provides alternatives at various spending

5. Anthony Bobert N

Zero-base budgeting is a fraud. Wall Street Journal, April 27, 1977

The author says that the name, zero-base budgeting, is a fraud. The one attempt to apply

ZBB (state of Georgia) did not result in an analysis of the budget from zero, with a

justification for every dollar requested. Within the first budget cycle, the zero benchmark

was replaced by 80%. Attention was focused only on the increment over 80% of current

spending levels. No one person can annually review all yet, if the job is delegated the

ZBB idea of comparing priorities is lost. Compared with current Federal incremental

budget procedures, zero-base budgeting has nothing of substance to offer, are not good,

and the good parts are not new. The author says that Federal agency experience as far

back as the 1960's shows that ranking decision packages according to priority, does not

work. Honest agency heads admit that program priority is influenced by the amount of

funds likely to be available, rather than the other way around.



Mr Anthony recommends zero-base review, in which outside experts go into an agency

and carefully examine its reason for being, its methods of operation, and its costs. It is

time consuming and traumatic and should be done about every five years, not annually.

6. Carter, Jimmy.

Nation's budgeting and answers negative concerns about the concept. ZBB Business,

65:24-26, January 1977.

Jimmy Carter discusses the positive aspects of zero-base Jimmy Carter tells why he will

use zero-base budgeting. In contrast to the traditional budgeting approach of

incrementing the new on the old, zero-base budgeting demands a total justification of

everything from zero. Each function of an organization, regardless of whether it is 50

years old or a brand new proposal is analyzed annually. ZBB draws on systems analysis,

problem-solving, cost benefit analysis, and program management techniques. Mr Carter

discusses the benefits of implementing ZBB in Georgia where it resulted in a 50 per cent

reduction in administrative costs. He states that he will require zero-base budgeting for

all Federal departments, bureaus, and boards, by executive order.

7. Dooskin, Herbert P.

Zero-base budgeting: a plus for government. National Civic Review, 66:118-121, 144,

March 1977.

Mr Dooskin defines zero-base budgeting (ZBB) and details its functions. and support

activities typical of government. ZBB assumes that any budgeting above zero requires

justification, and subjects all programs to the level of scrutiny usually reserved for new

programs. This encourages executives to set priorities and to find the most effective and

inexpensive method of executing particular programs done or ZBB does not overcome



work, and supervisors are reluctant to lay of unnecessary staff. Also, ZBB takes a great

deal of time, efficient, government or reduce costs in and of itself, but it may help. He

says that ZBB is particularly appropriate in service ZBB is not without pitfalls .Overall

policy planning must be Fear of supervisors' scrutiny is not easily Mr Dooskin concludes

that ZBB is a tool that cannot bring about

8. Hayward, John T.

Buzz words galore. Government Executive, v.8, no. 9:19-21, Sept. 1976.

The author voices his opinion on Carter's buzzword, zero-base budgeting. The concept

seems new, but continuing fundings in Washington already undergo five stages of

review before getting into the budget--authorization, appropriation, apportionment,

obligation and expenditure processes unrelated to the state budgeting process, where lead

to an eventually sensible process. ZBB has been used up to now, year to come will

decide the future of the nation. Congressional input into the budget process--and this will

Hardware not buzzwords, with the change of the Federal fiscal ZBB will only add to the

paperwork,

9. McGinnis, James F.

Pluses and minuses of zero-base budgeting Administrative Management Sept. 1976:

22-23 91.

Zero-base budgeting is the process of carefully analyzing budgets top to bottom. There is

no automatic carry forward of funds--all expenditures must be justified for the

forthcoming fiscal year. The budgeting process begins at the lowest levels of

management and works upward, depending on careful orchestration and special reports.

Budget reviewers make decisions based on a knowledgeable overview of a segment of an



organization as it relates to the whole. In the process, managers see the basic

interrelationships within the company. The keys to properly implementing zero-base

budgeting are: 1. Unqualified support of top management; 2. Effective design of the

process; and 3. Effective management of the budgeting. Among the minuses are that the

adoption involves an extensive manual, additional cost factors, and initial disruption of

normal operations. But on the plus side, managers will be forced to identify in efficient

and obsolete operations.

10. Rehfuss, John.

Zero-base budgeting: the experience to date. Public Personnel Management, 6:181-

187, May-June 1977.

Mr. Rehfuss offers a history and a definition of zero-base budgeting (ZBB). He

emphasizes decision packages, gives a short comparison between ZBB and PPBs, and

describes private and government implementations of ZBB. The article discusses the

pros and cons of ZBB as well. provides high level managers detailed information on

lower level activities and on lower level management performers. It suggests how

funding levels may be manipulated, to seek alternatives, consider cost reductions, axil

become more ZBB Lower level managers are forced knowledgeable about both their

functions and their organizational interrelationships. In addition, involvement with the

budget process adds to lower level managers' knowledge of government functions. One

of the most significant advantages of ZBB is that it establishes a financial planning phase

prior to budget preparation, dragging and resistance when programs are endangered.

Also, many agencies are hampered by federally earmarked funds which work against

ZBB prioritizing. People also complain that the budget preparation cycle is too short for

effective implementation of ZBB.



11. Havemann, Joel.

Taking up the tools to tame the bureaucracy: zero-base budgeting. National Journal,

9:514-517, April 2, 1977.

James T. McIntyre, Office of Management and Budget deputy director, hopes that

Federal zero-base budgeting (ZBB) guidelines will be ready in time for Federal agencies

to use as they prepare theirfiscal1979 budgets. For each program (decision unit) agencies

must establish a minimum budget level, below which the program would be without

value. This would constitute one decision package. Taking the same program, the agency

must identify add-ons that would lift the program above its current level. This would

constitute another decision package. Decisions packages would be ranked in order of

importance. Agencies have the option to examine in depth only the lower ranked

packages. Federal agencies fear that OMB will use ZBB to slash programs to meet

President Carter's goal of a balanced budget in fiscal 1981. They also fear that their

existing budgeting systems will be obliterated, that ZBB will become an exercise in

paperwork, and that the public may react badly if popular programs are ranked low. The

article also compares ZBB with PPB and IBO and includes a case study.

12. Lynch, Thomas.

A context for zero-base budgeting. The Bureaucrat, 6:3-11, Spring 1977.

In this introductory article, Mr Lynch gives a short definition and history of zero-base

budgeting (ZBB) and introduces the other authors. He points out that ZBB could repeat

many mistakes of the Federal implementation of planning-programming budgeting

(PPB). Facing the Carter administration been a trend towards Federal centralization of

social programs traditionally funded locally, through entitlement;. ZBB is an Executive



Branch tool addressed to the appropriations stage and cannot be applied to

uncontrollable expenditures which may be controlled at the authorization stage,

through some form of sunset legislation. Congressman Jack Brooks, Chairman of the

Government Operations Committee has urged President Carter to postpone mediate

Executive Branch introduction of ZBB. If the recession can be stopped, growth of

'uncontrollable programs will slow down, enabling the Carter administration to apply

ZBB to future Federal programs. The article sets ZBB in the context of the economic

conditions a by-product of; the recession has. The article also includes references to

other sources on ZBB. .

13. Minmier, George Samuel.

An evaluation of the zero-base budgeting system in governmental institutions. Atlanta,

Ga., Georgia State University, School of Business Administration, 1975 HJ2053.G4M55

264 p

Mr. Minmier compares various budgetary procedures and discusses the historical

development of zero-based budgeting (ZBB). He details Georgia's initial attempts in

zero-base budgeting, from 1973 to 1975. The focus on ZBB procedural changes as the

system evolved. The author includes an analysis of Georgia's experience and its

implications for the future. The book also contains tables, exhibits, and a bibliography.

14. Scheiring, Michael J.

Zero-base budgeting in New Jersey. State Government, v. 49, no.3:174-179, Summer

1976.

By order of Governor Brendan Byrne's memorandum of July 22, 1974, the state of New

Jersey adopted zero-base budgeting for all departments and agencies. deficit projected



for Fi 1976. The time for budget reform seemed ripe. This was done in the face of an

impending $450 million New Jersey 's ZBB system followed the prescribed basic steps

of making decision packages, evaluating and ranking the decision packages, and fin all y

allocating the resources accordingly. Forms were developed to facilitate each step.

15. MacFarlane, John A.

Zero-base budgeting in action- - there's nothing to it.'' CA Magazine, 109:28-32, Dec.

1976.

In the face of severe financial difficulties, McMaster University decided t o t r y zero-

base budgeting to help relieve the forecasted $2.7 million deficit for FY 1975-76.

Expected savings were to be effected in at least one of two ways: 1) finding less costly

alternative ways to do things, or 2) shutting down operations that were ranked a t the

lowest priority. In addition to the usual evaluation functions of decision packages,''

McMaster identified an alternative that caused policy effects to be evaluated as well. The

results of using ZBB involved changes in staffing, changes in the structure of accounting

records and increased knowledge of the operation of the University as a whole.

McMaster University achieved its goal of a balanced budget ahead of schedule. While

ZBB was found to have borne problems, McMaster planned to use the system again.



2. PROFILE OF ISRO/ISAC

2.1. Background of ISRO

It is not the purpose of this research to dwell on the details of rocket science or into

technical aspects of ISRO. The beginnings, however, need to be noted to understand the

management of the programme during analysis of ones financial administration.

2.1.1. History of ISRO

The Indian government created a dedicated institutional framework for its national space

program. This framework includes: the Department of Space (DOS), the administrative

agency responsible for the Indian space program; the Indian Space Research

Organization (ISRO), the primary operational entity responsible for Indian space

activities; and the Antrix Corporation, a government-owned organization responsible for

marketing Indias space products and services.10From the inception of its space program

in 1962, India has favoured an evolutionary technology development process Mistry, D.

(1998). The experience of India, over the past 40 plus years, in developing and operating

a space program focused on providing direct societal benefits offers a number of lessons

as developing countries across the globe become increasingly involved in space

activities. For a space program to be successful in the context of a developing nation, that

program must provide tangible benefits to that country and its people and be tied to

broader development objectives (Christensen, et al., 2009). The benefits from space

activities have now become widely known in the country. In fact there is worldwide

recognition of the importance of space activities not only for the developed nations but in

particular for the developing countries. Such recognition, even at well-informed levels,

did not exist in the country when India formally organized its modest space effort



through the establishment of the Indian National Committee for Space Research

(INCOSPAR) in 1962. In November 1963 the first sounding rocket was launched from

the Thumba Rocket Launching Station (TERLS) near Trivandrum. The founders of the

Indian space programme recognized the potential for the immense benefits from space

technology even in the early 1960s, when humanity was just ushering in the space era.

Early ideas about possible space applications of relevance to India can be found in a

number of writings and speeches by Dr Sarabhai, a selection of which have been brought

out in a publication by the Indian Space Research Organization (ISRO, 1979). The early

ideas were mainly cantered on the utilization of satellites for television and

developmental education, meteorology, and remote sensing for natural resources

management. The programme also included development and launch of sounding rockets

for space science research. Though international cooperation dominated in the early

years, careful stress was placed on self-reliance. Nuclei of trained manpower were

formed at laboratories that were then part of INCOSPAR but were constituted into ISRO

in 1969 (Rajan, YS, 1988).

2.2. The Aim and Vision of ISRO

Though here is no precise mission and vision statement for ISRO, it is widely proclaimed

that the following addressed by Dr. Vikram Sarabhai is accepted as its Vision (Joshi, P.

(Ed.). 1992).

There are some who question the relevance of space activities in a developing nation.

To us, there is no ambiguity of purpose. We do not have the fantasy of competing with

the economically advanced nations in the exploration of the moon or the planets or

manned space-flight. But we are convinced that if we are to play a meaningful role

nationally, and in the community of nations, we must be second to none in the



application of advanced technologies to the real problems of man and society(Kalam,

A. P. J. 2003).

Indias vision for the use of outer space has always been to achieve socioeconomic

development objectives as expressed in the Citizens Charter issued by the Department

of Space. The Charter inter alia specifies that India is committed to achieving indigenous

capability for the design and development of spacecraft, technologies for

communications, the survey of national resources, research and development in space

sciences and associated technologies, and the application of the space programme for

national development (Kasturirangan, K. 2006).

In addition, the DOS aims: (i)to carry out research and development in satellite and

launch vehicle technology with a goal of achieving self-reliance; (ii) to provide national

space infrastructure to fulfil the telecommunication and broadcasting needs of the

country; (iii)to provide satellite services required for weather forecasting, monitoring,

etc.; (iv)to provide satellite imagery required for the survey of natural resources and for

national security; (v) to promote research and development in space sciences; and(vi) the

development of an applications programme. (Sharma, S. 2007)

DOS implements the aforesaid objectives by: (i) providing the required transponder

capacity and facilities to meet the satellite communications, broadcasting and national

security requirements;(ii) providing adequate earth observation capability in multiple

spectral, spatial and temporal resolutions; (iii) developing indigenous capabilities and

providing launch services to meet national and commercial needs; and, (iv) providing its

products and services in a prompt and efficient manner to all users/clients (Baskaran. A,

2005).



The contribution of ISRO to the nation will be left unfair if there isnt any discussion

over its space programmes. The following section shows the glimpse of various space

programmes

2.3. The Space Programmes

The first generation of space launch vehicles began with the Satellite Launch Vehicle in

1979. Technologies from this and other early launch vehicles, along with judicious use of

technology transfer, support the present generation of launchers, the Polar Satellite

Launch Vehicle (PSLV) and the Geosynchronous Satellite Launch Vehicle (GSLV). The

GSLV in particular is an interesting example of Indias incremental development efforts.

The first stage, a 130-ton solid booster, is proven PSLV technology; however, the fourth

stage is a Russian supplied cryogenic engine, Mistry, D. (1998). ISRO is relying on the

Russian engine to gain experience with cryogenic technology as they develop an

indigenous fourth stage (ISRO, 2007) a.

India also possesses an indigenous capacity to build and operate world-class satellites,

with a particular focus on communications and Earth observation platforms. The INSAT

series of satellites provides an advanced telecommunications capability in combination

with a meteorological capability. The Indian Satellite System (IRS) provides resolution

and sensing capabilities comparable to systems operated by the most technically

advanced space actors, including government and private entities.

Indias satellite capabilities have enabled a number of successful applications focused on

providing societal services. The INSAT series has been used to provide rural

connectivity, resulting in the expansion of access to public television from26% of the

population in 1983 to 90% in 2005,Kasturirangan, K. (2006).Tele-education and tele-

medicine applications have also been developed using Indias satellite communication



capabilities Bagchi S. (2006).For example, in the pilot phase of the HEALTHSAT

program, using existing INSAT capabilities, 152 remote and rural clinics were connected

to 34 specialty hospitals in major population centres(ISRO, 2007)b. India launched a

dedicated communications satellite in early 2008, to provide communications links

between urban specialty health centres and rural clinics. A similar program for the

education sector, the EDUSAT program, has connected 10,200 terminals across India to

facilitate instruction (ISRO, 2007) b. The IRS satellites a

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