What is a Zero-Based Budget?


The Zero-Based Budget
A Most Cruel – but Needed – Endeavor

When you were a younger, budgeting may have seemed a task needed far into the future; but at midlife, you are staring retirement right in the face.

SO - What is a Zero-Based Budget?

Zero-based Budgeting
Dr. David E. M
37 months ago

5 answers


Every function in the organisation starts from zero and must justify their expenses for the next given period. The process will be repeated during each budget cycle and the amount of money allocated to each function is only what they can justify as expense.

David Cottrell
37 months ago
Each line item must be justified but the devil is in the details each reporting period - Dr. David E. 37 months ago

Income minus outgo equal zero. The goal is optimizing cost however if you covered all your monthly expenses but have still some budget you haven't done with this yet. You can repeat the process to create a sustainable culture of cost management. This is successfully used by growing companies to shift improductive costs to more productive area.

Paolo Beffagnotti
37 months ago
Sacred Cows are often unearthed in this method - Dr. David E. 37 months ago

Zero Based Budgeting or ZBB is used to refer to any budget approach that starts to build a budget up from scratch by justifying every expense foreseen.
However, the real success of applying ZBB is not in the tactical implementation of such an approach, rather in a change in management mindset and creation of transparency which enables a more financially responsible way of dealing with budgets and expenses. For many companies it means a big change in culture and requests a higher financial savvy in larger part of the employee population.
When executed as a one off it doesn't result in much more than a cost-cutting exercise bottom-up instead of top-down. The longer term value lays in integrating it in the culture of a company and having it as a toolset to allow a higher degree of self-management and creating budget flexibility allowing to react to opportunities or challenges outside the company. Often this is realized through creation of 3 dimensional responsibilities (P&L, package (type of cost), price (procurement)). This is only possible if a culture of mutual respect and candour challenge reins. Happy to discuss this 1on1. br, davy

Davy Verhulst
37 months ago
Never used in government. Should always be used personally. - Dr. David E. 37 months ago

By simple definition your income minus expense = 0.
Problem with the project planning where forecasting is never certain , you are either under budget or over budget at the end of the cycle. It works like agile process, with few initial failures ( or lesson learnt) you can achieve the zero budget culture when you keep repeating the cycle.

Hitesh Mathpal
37 months ago
Zero-based budgeting is an approach to planning and decision-making that reverses the working process of traditional budgeting. In traditional incremental budgeting, departmental managers justify only variances versus past years based on the assumption that the "baseline" is automatically approved. - Dr. David E. 37 months ago
ZBB = "baseline" is NOT automatically approved - Dr. David E. 37 months ago

interesting reading about the Philip Morris zero based budgeting case,

Paolo Beffagnotti
37 months ago
It spurs traditional Cost Volume Proft Analysis [CVPA] too! - Dr. David E. 37 months ago

Have some input?