Zero-Based Budgeting (ZBB)

Zero-based budgeting (ZBB) is a budgeting technique that requires all expenses to be justified for each new period, starting from a 'zero base' instead of depending on prior budgets. This method necessitates a thorough analysis of every function within an organization regarding its needs and costs, compelling managers to substantiate each expense from the ground up without the influence of past spending.

Zero-based budgeting provides a revolutionary approach to financial planning by necessitating a detailed examination of all expenditures. This strategy goes beyond mere incremental changes, ensuring that every dollar spent is warranted and aligned with the current strategic goals.

This outlines the process for implementing zero-based budgeting.

Although both ZBB and ABB seek improved financial planning, they approach budgeting from distinct angles.

Despite its effectiveness, zero-based budgeting is considerably more time-consuming and resource-demanding compared to traditional methods. It requires managers to justify each line item from the beginning, a rigorous process that can distract from other essential responsibilities. This comprehensive annual review can represent a significant effort for any organization.