Zero-Based Budgeting (ZBB)

Zero-Based Budgeting (ZBB) is a methodology that helps align company spending with strategic goals. Its approach requires organizations to build their annual budget from zero each year to help verify that all components of the annual budget are cost-effective, relevant, and drive improved savings.

Implemented effectively, ZBB is a cost discipline that can help businesses improve resource planning, employee engagement, and organizational collaboration. Although ZBB is often credited with measures to reduce costs, its approach doesn’t exclusively focus on savings and can help test assumptions, solve problems, and ensure that spending is aligned to the growth objectives of the organization. If performance does not meet expectations, ZBB can help businesses identify how to best course-correct for the months ahead. Zero-Based Budgeting in management accounting involves preparing the budget from scratch with a zero-base. It involves re-evaluating every line item of cash flow statement and justifying all the expenditure that is to be incurred by the department.