Zero-based budgeting (ZBB) is a financial management approach where budgeting starts from a base of zero for each budgeting period. ZBB requires every expense to be justified and approved from scratch. The primary objective is to optimize resource allocation, eliminate unnecessary expenses, and ensure that every dollar spent aligns with the individual or organization's priorities.
Because all expenses are evaluated and justified based on their necessity and value, this ensures a thorough review of all expenditures and prevents the carryover of unnecessary or inefficient spending from previous budgets. Zero-based budgeting ensures that budget decisions are aligned with the individual or organization's strategic goals. It provides a framework to allocate resources in a way that supports the long-term vision of the organization and eliminates wasteful spending on activities that do not contribute to strategic outcomes.
Zero-based budgeting encourages a focus on value creation and prioritization. Resources are allocated based on the expected benefits and returns, ensuring that funds are directed towards activities that generate the most value for the organization. By requiring detailed justifications for expenses, it becomes easier to track and measure the effectiveness of spending. This transparency and accountability foster responsible financial management.