Zero-Based Budgeting

Zero-Based Budgeting (ZBB) is where every expense has to be justified for each new period from a “zero base”. Unlike traditional budgeting where you adjust previous budgets with incremental increases or decreases, ZBB requires you to build a budget from scratch, evaluating all costs as if they were new. This means no expense is automatically carried over, making it a powerful tool for cost control and prioritisation.

In practice each department or team has to justify their expenses by linking them to business objectives and expected outcomes. For example instead of just assuming the marketing team will get the same budget as last year, they have to present a case for why every activity – ad spend, software subscriptions, events – is necessary. This allows decision makers to evaluate the value of each expense relative to organisational goals and allocate funds to the highest impact activities.

The main benefit of Zero-Based Budgeting is it eliminates waste, prevents budget padding and encourages efficiency. It also aligns spending to strategic priorities so resources are directed where they deliver the most value. However it can be time consuming and resource intensive as it requires detailed justification and continuous evaluation.

ZBB is particularly useful in times of financial pressure, restructuring or when an organisation wants to ensure strict alignment between spending and results.