PBB Overview - December 2016

Priority Based Budgeting

[PBB]

Overview

November 2016

ProjectProject Limited

There’s nothing new about budgeting, but very few organisations do it well!

Budgeting often gets a bad press. It is often considered to be, an administrative burden,

insisted upon by accountants, that achieves little or no useful purpose.

Thinking about budgeting in this way misses a great opportunity to advance an organisation

towards its goals and objectives.

The budgeting process, if undertaken in the correct manner, provides an opportunity to

align funding with organisational priorities and fully engage managers and employees in the

decision making process.

To paraphrase Joseph L Bower, “all strategy is resource allocation”, i.e. budgeting.

Priority [Zero] Based Budgeting has been deployed in many organisations, over many years,

to deliver a balanced budget and resource plans that are prioritised to support the

organisations goals and objectives


Resource Prioritisation

[Organisation Level]

Robust Resource Planning & Budgeting are vital components of the Strategy

process?

Objective Setting

Functional Goal Setting

Resource deployment and cost

disbursement

Resource Assignment

Strategy

Resource

Planning &

Budgeting

Financial

Control


PBB is a zero / priority based resource planning process for assigning limited resources

based on objectives, risk and benefit

PBB directs scarce resources to priority activities across the organisation, focussing

maximum available resources on services and outcomes that are critical to success.

PBB is undertaken by the managers and staff who run the business. Who, as a result

develop new planning and implementation skills which are retained for future application

Highly successful deployments of PBB have been delivered across the UK public and

private sectors during the past five years.

The outcomes and feedback from organisations who have implemented PBB are positive

and consistent;

i. PBB enables an organisation to achieve its objectives within a balanced budget,

ii. The PBB process is remarkably open, honest and robust i.e. “it feels fair”

Priority Based Budgeting [PBB] has a unique track record of producing robust

resource plans and budgets


Roles & Responsibilities within PBB are entirely consistent with wider roles in the

organisation

Governance Structure Roles Review Panels

Leadership Team

/ Review Panel

Function Heads

Departmental

Managers

[BSMs]

PBB Support

Team

[Drawn from

organisation]

� Train

� Question

� Challenge

� Link SMEs

� Workbooks

� Support

• Set objectives

• Provide guidance

• Final funding decision

• Provide direction

• Support to "BSMs“

• Link common subjects

• Review & challenge

• Analysis of current activity

• Generation of options

• Presentation of proposals

• Implementation of change

• Challenge and sharing ideas

• Resolution of linked ideas

and interdependencies

• Panels preparation and

rehearsal

Organisational

Leaders

Each BSM has a three

20 minute Review

Panel meetings

during the course of

PBB to:

– present findings

– explore

opportunities

– validate findings

and assumptions

– redirect effort

– request / receive

Panel support


What does an organisational PBB project involve – an Indicative Project Plan

1. Service Definition

Analysis and Costing

2. Identify and

evaluate efficiency

improvements and

Service Level options

3. Service

Prioritisation and

selection

4. Service Design &

Implementation

Planning

5. Implementation

Project Management & Coordination

Training, support, challenge and provision of advice to BSMs

Phases

PBB workbooks [One per

Subject Area] analysing FTE

and other costs to services

Planning Guidelines

Panel Discussion

Draft Proposals – inc.

Benefits / costs of Method,

Volume and Service Level

options

Panel Discussion

Final proposals – i.e. more

detail of costs and impact

Panel Decision

Ranked list of prioritised

Service Levels

Agreed funding decision

[Drawing the Line]

Redesigned Services to

meet agreed priorities

Revised Operating Model

Implementation Plans

Implementation of all

changes required to

achieve the agreed

resource plan / budget

Outputs

Objective

Confirm resources

Define services

Set objectives and direction

Confirm Planning

Guidelines

Present improvement

opportunities

Agree structure and

content of Service Levels

Confirm direction

Approving or rejecting

proposed Method and

Volume Changes

Agreeing and scoring

proposed Service Levels

Agreed implementation

plans for all subject areas

Agreed organisational

design / configuration

Reconfiguration of in scope

Budget Subjects to meet

budget and performance

objectives.

Cross

lifecycle

activity

Panel 1

Early September

Panel 2

Mid-October

Panel 3 & Funding

End November Early February End May

Commence

ASAP


Agree objectives and priorities . Confirm cost and resource baseline . Define “Budget Subjects” and managers

The PBB project is formally launched by means of half day training workshops for all managers involved.

Baseline, participants and activities

Identify and confirm:

1. current cost baseline to be included

within PBB . Normally the current

year budget or actual expenditure, if

the budget does not represent

current spending.

2. identification of all participants in the

process, i.e. Budget Subject

Managers [BSMs], who will be

responsible for developing and

ultimately owning the budgets

agreed. The total in scope budget is

allocated to Budget Managers to

establish clear responsibilities for

each cost element and type.

3. identification of the services and

outcomes in scope. These high level

services will be further developed by

BSMs during the PBB process.

Objectives and guidelines

Agree and document objectives for the

PBB exercise:-

1. Confirmation of organisational

goals and objectives, i.e. as defined

in the organisational Strategy /

Medium Term Plan

2. Quantify and agree financial

resources available for the period

covered by the budget / resource

plan [planning period]

3. Details of planned , expected or

required changes that will [or may]

impact the organisation during the

planning period. e.g. organisational

changes, reorganisation, revised

operating models.

4. Agree membership of the PBB

Review Panel. This panel will

review, challenge and ultimately

approve PBB proposals . Review

Panel typically comprises three to

five senior managers

Launch workshop

Half day briefing and training events for

all BSMs and Senior Managers. The

session will instruct the participants

how the PBB project will be

undertaken, their roles, the activities

they will undertake and the

deliverables they will be responsible

for

The session will include practical

guidance on how to complete the

various tasks required during PBB and

instruction on the forms and

spreadsheets to be used.

Following this session BSMs will be

equipped to commence the Analysis

stage of PBB.

PBB Pre-Project Phase


1. Service Definition Analysis and Costing

A structured Activity & Process Analysis in the first phase of PBB.

Completing this analysis ensures that all participants develop a clear and

consistent understanding of how resources are currently utilised within

the organisation. Activity Analysis develops and provides the structure

and baseline information that informs all later stages of PBB and enables

the Review Panel to test and explore budget proposals and changes.

Using well proven Activity Analysis tools Budget Subject

Managers quickly produce consistent and insightful

analysis of employee activity and financial expenditureProjectProject Limited

2. Identify and evaluate service improvements

Having established and quantified current services, outcomes and costs, each BSM works to develop a structured

proposal which addresses, Volume Changes. Method Changes and Service Level options.

Delivering services more efficiently and effectively

Step 1. Quantify changes in demand, i.e. Volume Changes

Demand for services may vary between years. Step 1

quantifies the impact of known or anticipated changes.

Step 2. Identify and evaluate “Method Changes”

Method Changes are efficiency improvements which will

provide the same service for a lower cost. Examples include,

improved processes , use of technology, procurement

savings and improved staff utilisation

Step 3. Identify and evaluate “ Service Levels”

Service Levels are packages of services, ranked for their

importance to customers and users. Service Levels form the

building blocks of a Priority Resource Plan. Service levels

are defined as ;

Minimum – statutory / legal requirement

Intermediate – practically deliverable Service Level, higher

cost and lower risk than Minimum,

Current – levels of Service currently provided but at lower

cost as a result of proposed Method Changes

Enhanced – Services, not currently provided but valuable

enough to be considered for additional funds.


3. Service prioritisation and selection

Purpose and benefits

� Retain customer security clearance� Secure environment for staff

� Minimise vandalism and theft� Protect intellectual property

Method changes (£000)

Night security cover

Daytime access control

Daytime security rounds

24hr permanent manning

Automatic gates

CCTV for boundary

Electronic monitoring

-1-1

-1

-30

-40

-30

M.

I.

C.

E.

1

2

1

2

50

76

35

80

(£000) RiskService levels

Total proposed

Current budget

6

8

241

298

81

100

%

-1 -37

(£000)Workload Changes

Project X ends (MOD)

Purpose and benefits

� Retain customer security clearance� Secure environment for staff

� Minimise vandalism and theft� Protect intellectual property

Method changes (£000)

Night security cover

Daytime access control

Daytime security rounds

24hr permanent manning

Automatic gates

CCTV for boundary

Electronic monitoring

-1-1

-1

-30

-40

-30

M.

I.

C.

E.

1

2

1

2

50

76

35

80

(£000) RiskService levels

Total proposed

Current budget

6

8

241

298

81

100

%

-1 -37

(£000)Workload Changes

Project X ends (MOD)

Example: Security

1

2

3

4

5

6

7

8

9

10

Assessment of Service LevelRank

Essential to the business - unavoidable corporate or legal requirements

Critical - unavoidable without substantial loss or damage

Very attractive, important and productive increments of service

Important - hard to see how they could be dropped

Significant benefits but could conceivably be dropped

Desirable but first to be dropped if funding curtailed

Benchmark

Marginal but first to be supported if funding available

Possible but only if much increased funding available

Doubtful - not sufficient justification at present

Unlikely ever to be funded1

2

3

4

5

6

7

8

9

10


1

2

3

4

5

6

7

8

9

10


Essential to the business - unavoidable corporate or legal requirements

Critical - unavoidable without substantial loss or damage

Very attractive, important and productive increments of service

Important - hard to see how they could be dropped

Significant benefits but could conceivably be dropped

Desirable but first to be dropped if funding curtailed

Benchmark

Marginal but first to be supported if funding available

Possible but only if much increased funding available

Doubtful - not sufficient justification at present

Unlikely ever to be funded

Rank

1

2

3

4

5

6

7

8

9

10

11

Rating

10.0

10.0

9.0

8.5

7.2

6.7

5.2

4.5

4.2

4.2

3.0

Level of Service

M Statutory Accounting

M E.D.I. Customers

I Sales\purchase records

M Record Keeping

C Debt collection

I Large accounts

I Advice to managers

E Debtor management

C Full service

C All customers

E Consultancy service

Subject

Accounts

Order Proc.

Accounts

Personnel

Accounts

Order Proc.

Personnel

Accounts

Personnel

Order Proc.

Personnel

No

1

1

2

2

1

10

5

2

4

4

2

£k

50

15

76

35

35

120

72

80

98

50

51

No

1

2

4

6

7

17

22

24

28

32

34

£k

50

65

141

176

211

331

403

483

581

631

682

%

7

9

20

26

31

48

58

70

84

92

99

Increment Cumulative

Funding

Line

The ranked Service Level listing provides a prioritised list of resource

allocation opportunities. Service Levels with higher scores are assigned

resources before lower scores. Available resources will inevitably be

exhausted before all potential [including Enhanced] Service Levels have

been resourced. When this occurs, those Service Levels falling “below

the line”, i.e. not resourced, will be those that management has

assessed as less critical for success. If un-resourced Service Levels are,

upon reflection considered vital, then a re-ranking will be required to

correctly balance requirements with available resources

Each BSM completes the standard [spreadsheet based] PBB documentation,

quantifying the impacts of Volume Changes, Method Changes and

Service Level Options, for their assigned subject area

The standard forms fulfil two vital roles:

1. Provides the Review Panel with consistent information, enabling

comparison between proposals

2. Ensures that all proposals are numerically correct

The Review Panel applies a robust

scoring method to each Service

Level for each Budget Subject to

produce a ranked list of every

Service Level proposal that is both

logical and transparent.


4. Service Design & Implementation Planning

Once the final funding line has been agreed each BSM will produce an Implementation Plan for all approved

Volume, Method and Service Level Changes within their Budget Subject.

These Implementation Plans are prepared using a standard PBB Planning Template; as illustrated below.

Upon completion each BSM will submit their Implementation Plan to their Department Head for review and initial

approvalOnce the Budget Subject plan has been authorised by

the Department Head , BSMs may commence

implementation

Upon completion of all SMA plans for their

Department,, each Department Head will prepare a

Department summary, using a standard Template,

that defines the key Milestones and Risks for the

implementation of all Department changes

Each Department Head will present their Department

plan summary to the Executive Team for final

approval.

Once approved the Department summary plans will

form the baseline for managing and reporting

implementation progress and benefits realisation

Department Heads will present progress and

achievement to the Executive Team every four weeks


Appendix -Tools and Resources to support PBB Delivery

The PBB process is supported by standard tools and extensive documentation that has

been developed and refined through numerous successful projects.

• Generic PBB project plans and timetable

• PBB Team Member training

• Budget Subject Manager training

• PBB Activity Analysis & Proposal Workbooks, inc. completion instructions

• Service Level identification tools and techniques

• Method improvement identification tools and techniques

• Panel Member roles, responsibilities and training materials

• Ranked priority listing and selection tool

• Implementation planning templates, inc. guidelines and instructions

• Implementation “readiness assessment” tools and guidelines

• Implementation reporting templatesProjectProject Limited

Documents

PBB Overview - December 2016