Most of us don’t like take it or leave it situations. It was recognized a few decades ago that people at that time and those in the future wanted more options. We had already advanced in a big way from the days when Henry Ford said you can have any color car you want – as long as it’s black. Sears & Roebuck kept it simple. They offered most items with three options: good, better and best. But that wasn’t sufficient for a more modern generation. The word “menu” got transferred from restaurants to just about everything we buy. Choices, choices, choices! Eventually, the multiplicity of choices got back to the restaurant. That is why people stare at a menu about as long as they take to eat when the food arrives. And then, like my wife Linda does, she wants item 62 but with the sauce from item 21 and the pasta from item 88. But bring the sauce on the side and leave off the onions!
This internal urge to have options in local government got pushed hard in the 1970s. It was called Zero Base Budgeting (ZBB). I won’t use this time to give a full technical explanation of ZBB, and even thought about not mentioning the buzz word at this point. ZBB got crushed by its own weight since it was first tried as a manual process producing reams of paper. Many cities say they want it, but they really don’t. Some cities say they have it, and they really don’t. Others say they don’t want anything to do with ZBB, but they actually have remnants in their current budget process and probably don’t realize it. In fact, I would say there are pieces of ZBB in just about every local government’s process in both form and substance.
Forget What I Just Said.
Like in the movie, Men in Black, the flash from the gizmo that erases what you just saw or heard has just blinded you. You aren’t biased one way or another about that budgeting concept that was boiled down to three seductive letters. You don’t know anything about it. About what, you say? Good, a clean slate.
What you do want is to be relieved of the frustration of a dilemma. “Take it or leave it” brings out your fangs and claws. Your organization has advanced to the point of having a budget broken down into funds and departments. That was just to fulfill a Charter requirement. You want more choices. If you could visualize the budget presentation you want, it would likely take some coaching to be able to articulate the tool and process you want. Let me help with some instruction and vernacular.
You would want the departments to be broken down into functions or divisions that reflect the way things are organized. If you walked into the police station, the physical layout would be obvious in most cases. In fact, look at the signage in the building. You would see Administration, Records, Dispatch, Patrol, Investigations, Training, Crime Prevention, Property Room, Jail and more. This is easier to do with a very large organization. What are the resources needed for each one of those divisions?
There are some things that go across all of those divisions. You learn from asking questions that there is a Tuition Reimbursement Program embedded in most of those divisions. But you then realize when aggregated the dollar amount is quite large. So you would really like to be able to see some spending broken down by … gee how can we describe it? Programs! Program that allow you to make separate decisions without them being bundled inside multiple divisions. Hey, you just nailed it. Decision Units. Using this example, some cities have moved Tuition Reimbursement Programs into the HR Department or to a Non-Departmental account so that the dollars can be controlled and the policies administered evenly – and the results followed up consistently by an “independent party.”
Therefore, a Decision Unit can be a division within a department or a program within a division or … it can be anything meaningfully grouped so that it can be studied and decided upon separately.
Okay, Now What?
If a budget could be broken down such that you have nicely identifiable Decision Units, what else would you need? This is where it can be complicated. If you could understand each Decision Unit in the context of Sears & Roebuck’s, “Good, Better and Best”, that information would be of tremendous help to policy makers. If fact, a true examination would include levels in the other direction: “Adequate, Not Good, Not Needed.”
Oh my. Lewis, you just stopped preaching and have gone to meddling. Yes, and I have intentionally multiplied the complexity by introducing Levels of Service. However, it is a fact that every single Decision Unit could be stratified into levels:
The operative words are “could be stratified.” These could be called Decision Packages.
Let’s do a reality check. If the General Fund had 30 Departments and each Department averaged 3 Divisions and each Division had 4 Decision Units and each Decision Unit had 6 Decision Packages, I may have just created a monster. And I have. Unless done smartly and with a maximum use of automation. But there is more. Let me get to the end.
The Managerial Questions.
The brilliance and reward for breaking down a budget into Decision Packages is to then apply the essence of managerial analysis. The roots are in Peter Drucker’s 1954 book, Principles of Management. The questions all get to Drucker’s fundamental question asked in every one of his subsequent books: “What is our business, and what should it be?”
For each Decision Package, visualize being able to grasp this information:
What is the purpose of us performing this service?
What are the benefits to be gained from funding this service?
What are the consequences of us not funding this service at this level?
What are some alternative ways we can provide this service?
Who else is providing some form of service?
How many people are being served for these dollars?
What are the key, measurable metrics to understand effectiveness?
What are some key, measurable metrics and ratios to understand efficiency?
What are the direct fees and revenues generated from this service, if any?
How Is A Final Decision Reached?
This is another brilliant feature of budgeting that can work in a collaborative fashion. In its purest form, the police department would rank each Decision Package with the involvement of all division commanders. Then the police executive staff would provide their ranking to the police chief.
The police department and every other department head could take the same input and provide their collective ranking to present to the City Manager. Yes, every department can learn what the other departments do, understand their priorities and appreciate the entirety of city services. What a novel idea! After tweaking, the City Manager would then present the budget to the City Council for their ranking.
But wait, appreciate this. It is very likely that the City as a whole would have hundreds of Decision Packages. They key is to focus on perhaps the 50 DPs that barely didn’t get funded and the 50 DPs that barely got funded. There can be drastic deep reaches at any point. By that I mean that the City Manager or Council could elect to remove a DP that every level of management thought was mandatory or indisputable essential. But that is not likely to happen often. There are ways in the ranking process to prevent a police helicopter from being ranked number 1 over patrol or jail operations.
The essence of policy making and the meshing of policies and management decisions is by close examination of those items that hug the funding line. The discussion of the trade offs of moving something that wasn’t initially funded to replace a DP that was initially funded is the centerpiece of budget balancing.
The council could also see very clearly the recommendations (and consequences) for cuts if they were prone to cut the tax rate. And the same goes for moving the tax rate up to fund what might be considered a high priority by the Council.
Okay, this is ZBB in its purest form. It can work and it does work. It is, however, WORK. It is a participative budgeting process. It is open-heart surgery. It could be applied across the entire city in one budget season, but that might be overkill for staff and the Council. It could be done selectively with several departments examined one year and another set the following year.
Here’s the deal. It IS being done at some level by every good management team irrespective of the forms and instructions. ZBB is simply first slicing an organization such that the deliberate and profound management questions can be asked and answered in a meaningful way. It is an analytical tool. But it would all be academic if not used as a communication tool. And communication leads to understanding and, hopefully, better decisions. LFM.