UK Accounting Glossary
A cash flow budget in which the manager responsible for it’s preparation is required to prepare for and justify the budgeted expenditure from a zero base. i.e. assuming that initially there is no commitment to spend 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.
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.
The proposal that the budgets of governments and other organisations should be designed starting from first principles, defining the aims of the organisation and adopting the best method of achieving them.
This is contrasted with the usual budgetary procedure, which starts from the previous period’s budget and makes marginal changes.
As real world organisations are committed to contracts with their employees and suppliers, and are affected by public perceptions about pricing and the services they require, zero-base budgeting is difficult to achieve.
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.
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Definitions for Zero-Based Budgeting are sourced/syndicated from:
This glossary post was last updated: 23rd December 2018.