The University of Michigan Medical School has concluded that the traditional budgeting process used by it and other academic institutions fails to discriminate adequately among programs, particularly in times of level or declining resources, and that this failure could result in mediocrity. As a result, the school decided to develop a new system for managing resources and chose to explore an approach that utilizes the principles of zero-base budgeting. An important reason for selecting this technique was its requirement that managers plan, evaluate, and set priorities for all programs, existing as well as new. After a feasibility study that produced encouraging results, a test implementation of the newly developed system was carried out in all six of the school's basic science departments and in two clinical departments. While some difficulties were encountered, including those normally associated with the introduction of a new and complex system, the results of the test implementation were encouraging, and the process is undergoing further development to broaden its application in the clinical departments.