UK Accounting Glossary
A budget approach where each expenditure item must be justified for each new budget period.
A Zero-base Budget (ZBB) is a cash-flow budget in which the manager responsible for it’s preparation is required to prepare and justify the budgeted expenditure from a zero base – This means assuming that there is no prior commitment to allocate any resources on any activity.
Rather than the previous year’s budget being the starting point for the next budget, a zero-based budget assumes no activities: everything in the budget must be justified.
Businesses can develop or modify their own unique approaches to Zero Based Budgeting; the following five steps can provide a baseline for implementation.
In zero–based budgeting, your income minus your expenditures should equal zero. The zero–based budgeting method encourages you to use every penny of your monthly income — but that doesn’t mean blowing it on a shopping spree. Rather, you allocate your money to expenses, savings and debt payments.
A budget is meant to summarise the saving and spending that has taken place over the past year. The zero–based budget is considered by some to be the best method of budgeting because: The zero–based budget ensures that all capital you make is assigned a specific purpose.
The major advantages of zero-based budgeting (ZBB) are flexible budgets, focused operations, lower costs, and more disciplined execution.
The main disadvantages include the possibility of resource intensiveness, budget manipulation by savvy managers and a natural bias toward short-term planning.
Zero–based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero–based budgeting starts from a “zero base,” and every function within an organisation is analysed for its needs and costs.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.