STRATEGIC MANAGEMENT ACCOUNTING

Strategic Management Accounting

Strategic Management Accounting

1. Discuss the application of Zero Based Budgeting (ZBB) by the university and alternatively a car manufacture.

Zero-based budgets are recognizable because of their primary components: the base budget, decision units, and reduced-level budget and decision packages. All decision packages are ranked by priority, which allows for important existing programs to be maintained while also permitting the addition of new programs. Zero-based budgeting is commonly used in government because it allows managers to try new programs and rethink those that may not be fully effective. It also prevents the workplace from presuming the status quo and presents the occasion to reallocate resources. These are two main reasons why the Community Corrections Department (CCD) is using this budgeting technique in the example provided. (“Budget Formation,” 2004)

Money is tight in correctional institutions, and the CCD appears to be using this technique to reevaluate the effectiveness of its current programs (i.e. restitution center) and to remain innovative in its program creation throughout the years. Each decision package outlines the goal, methods, alternatives, impact, measures, and designated budget. The budget section provides a limited amount of information including, cost of personnel services and materials and supplies, the amount of fulltime employees, and the general fund amounts. They also use the summary page it to lay out what funds are designated to each decision package by various donors. (“Budget Formation,” 2004)

There are also some negative elements to using zero-based budgeting. It can be a difficult process for managers as well as employees when their programs are cut or are at risk of being cut. Employees may feel underappreciated, especially when they feel that they, or their department, are on the chopping block each year. It also takes a great deal of time to prepare the various decision packages, which could take time away from other necessary functions. (“Budget Formation,” 2004)

This budget clearly shows the priorities of the CCD since they are ranked in order of the decision packages. Restitution comes first, followed by job development and finally probation monitoring. Unfortunately, not much can be deduced about the CCD's fiscal trends since this technique does not give budget allocations by decision package for the previous year. As for the fiscal status of the department, the budget shows that 56.6% of the department's funding comes from State and Federal government, 16.6% comes from the general fund and 26.5% comes from other sources but does not show if they are under-funded or over-funded. (“Budget Formation,” 2004)

While it is important for corrections agencies to stay ahead of the curve and properly protect and serve their communities, zero-based budgets require a great deal of time to prepare. Therefore, a program performance budget may be more appropriate for the Community Corrections Department. This type of budget would allow the department to have even more specific goals for each program and would closely evaluate performance so that the department could better determine whether or not to drop a ...