ZBB (Zero Based Budgeting)

Zero-based budgeting (ZBB) starts from scratch, requiring all expenses to be justified, ensuring necessity and relevance.

Back to index

Introduction

Zero-based budgeting (ZBB) is a budgeting approach in which every expense must be justified from scratch, regardless of whether it is included in a previous budget or not. Unlike traditional budgeting methods, where prior budget figures are often used as a baseline for the next period's budget, zero-based budgeting starts with a "zero" base and requires all expenses to be justified and approved based on their necessity and relevance to current business objectives.

Process

The process of zero-based budgeting typically involves the following steps:

  1. Identification of activities and expenses: All activities and expenses are identified and categorized, and each expense is broken down into its individual components.
  2. Review and justification: Managers and budgeting teams thoroughly review each expense item, questioning its necessity, efficiency, and contribution to organizational goals. They must provide a solid justification for each expense.
  3. Ranking of expenses: Expenses are prioritized based on their importance and alignment with strategic objectives. Essential activities and expenses are allocated resources first.
  4. Budget allocation: Budgets are then allocated to the activities and expenses according to the priority ranking. This is done until the available budget is fully distributed.
  5. Monitoring and control: Throughout the budget period, actual expenditures are closely monitored and compared to the allocated budget. Any deviations are addressed promptly to maintain budgetary discipline.

In Summary

Zero-based budgeting is often seen as a way to identify unnecessary or redundant expenses and ensure that resources are allocated efficiently. It can lead to cost savings and resource optimisation, as well as encourage a thorough examination of business processes and expenses. However, it can also be more time-consuming and may require more effort compared to traditional budgeting methods. As a result, some organisations may use a combination of zero-based budgeting for certain areas and traditional budgeting for others.

Red decorative circle background imageDecorative yellow square background imageDecorative green triangle background image
Get updates on Product, Team News, Community and Coverage
Sign up to our Newsletter
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.