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.
Method of preparing cash flow budgets and operating plans which start from zero at the beginning of each year.
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.
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This glossary post was last updated: 23rd December 2018.