Service-Level Budgeting

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Tutorial.png Unit 7 

Introduction | Incremental Budgeting | Zero-Based Budgeting | Periodic Zero-Based Budgeting | Service-Level Budgeting | Performance-Based Budgeting

Service-Level Budgeted is a modified form of ZBB. Estimates for the coming financial year are based upon a percentage (usually between 70-90%) of approved expenditure for the current FY. This enables existing services to be carried on, while putting managers under pressure to improve efficiency. The remaining funds are set aside in a separate pool to finance new projects or activities, which are bid for through a process similar to decision packages.

The current system of government funding for Irish universities is an example of Service-Level Budgeting in practice. Over a decade or more, the amount set aside in the national budget to support the existing activities of the universities has grown in monetary terms but declined in real value because of inflation. At the same time, additional funding has been made available for innovative projects to address national research and development priorities. All universities in the Republic of Ireland can bid for these funds by submitting detailed project proposals, which are evaluated and prioritised by the Higher Education Authority.

Service-Level Budgeting combines the advantages of the incremental approach by providing a certain level of stability and security in relation to future funding streams. Institutions are not required to engage in a time-consuming exercise to analyse and estimate costs for core activities or on-going operations. At the same time, incentives are provided to increase efficiency and to develop proposals for innovative, new activities.