Zero-Based Budgeting

Zero-Based Budgeting, commonly abbreviated as ZBB, is a budgeting methodology in which every expense must be justified during each planning cycle, regardless of historical spending levels. Unlike traditional budgeting, which typically adjusts previous budgets incrementally, Zero-Based Budgeting begins from a baseline of zero and requires managers to demonstrate why each activity deserves funding.

The methodology encourages organizations to evaluate spending according to strategic value rather than historical precedent. Every department, initiative, and operational activity competes for resources based on its expected contribution to organizational objectives. This approach frequently identifies unnecessary expenditure, outdated processes, duplicated activities, and opportunities for operational improvement.

Although Zero-Based Budgeting requires greater analytical effort than traditional budgeting, it often produces more disciplined resource allocation and stronger financial governance.