Selective Sequential Zero-Base Budgeting Procedures Based on Total Factor Productivity Indicators

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A. Ishikawa ; E. F. Sudit (1981)
  • Journal: Management Science, volume 27, issue 5 May, pages 534-546
  • Related identifiers: doi: 10.1287/mnsc.27.5.534
  • Subject: organizational studies, zero-based budgeting, productivity

The authors' purpose in this paper is to develop productivity-based sequential budgeting procedures designed to expedite identification of major problem areas in bugetary performance, as well as to reduce the costs associated with comprehensive zero-base analyses. The concept of total factor productivity is reviewed and its relations to ordinary and zero-based budgeting are discussed in detail. An outline for a selective sequential analysis based on monitoring of three key indicators of (a) implicitly budgeted total factor productivity; (b) revenue growth; and (c) profitability; is suggested. It is argued that this approach is instrumental in promoting a more systematic performance analysis, which is capable of revealing hidden efficiency shortfalls and is potentially cost and time saving. Additionally, this type of productivity-based budgeting is shown (via use of an actual application) to provide all the informational inputs for a full-fledged analysis of expected budgetary distribution of productivity gains among various categories of employees, shareholders and customers.
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