Zero-based budgeting

Extracted Attributes

• Purpose

  Assess efficient use of resources, identify and eliminate unnecessary costs, keep control of spending, focus on high-profit initiatives, improve Return on Investment (ROI).

• Contrast

  Differs from traditional/incremental budgeting which adjusts from previous budgets.

• Advantages

  More granular process, strategic top-down approach, cost discipline, improved resource planning, employee engagement, organizational collaboration.

• Method Type

  Budgeting technique

• Disadvantages

  Requires complete organizational restructure each budget cycle, involved process, costs of the process itself must be weighed against potential savings.

• Core Principle

  All expenses must be justified and approved for each new budget period, starting from a 'zero base' with no pre-allocated funding.

• Application Sectors

  Government, Private Sector

Timeline

• Peter Pyhrr develops Zero-based budgeting. (Source: Wikipedia, Investopedia)

  1960s-1970s

• The Department of Government Efficiency (DOGE) initiative, inspired by Elon Musk's Twitter turnaround, plans to apply Zero-based budgeting to scrutinize federal spending, with USAID as a key example. (Source: Related Documents)

  2020s

Zero-based budgeting

Zero-based budgeting (ZBB) is a budgeting method that requires all expenses to be justified and approved in each new budget period. It was developed by Peter Pyhrr in the 1970s. This budgeting method analyzes an organization's needs and costs by starting from a "zero base" (meaning no funding allocation) at the beginning of every period. The intended outcome is to assess the efficient use of resources by determining if services can be provided at a lower cost. However, the saving comes at the expense of a complete restructuring every budget cycle. Although used at least partially in both government and the private sector, there is some doubt whether ZBB has ever been utilized to its fullest extent in any organization.

Web Search Results

• What is Zero-Based Budgeting (ZBB)? - Oracle

  Zero-based Budgeting—Overview # What is zero-based budgeting (ZBB)? Zero-based budgeting (ZBB) is a budgeting technique in which all expenses must be justified for a new period or year starting from zero, versus starting with the previous budget and adjusting it as needed. ZBB is a highly effective business-planning tool to help a company identify and eliminate unnecessary costs, keep control of your spending, and focus on high-profit initiatives. [...] With zero-based budgeting, the budget is started from scratch or a “zero base” each year. Using this approach, every line of business within an organization is analyzed for its needs and costs while ignoring historic spending. The key difference is justification: Zero-based budgets need to review every expenditure at the beginning of the budget cycle, and lines of business have to justify the need and impact of each line item before funding can be approved.

• Zero-Based Budgeting: What It Is and How to Use It - Investopedia

  Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process begins from a “zero base” and every function within an organization is analyzed for its needs and costs. The budgets are then built around what's needed for the upcoming period regardless of whether each budget is higher or lower than the last one. ### Key Takeaways [...] Traditional budgeting may not allow cost drivers within departments to be identified but zero-based budgeting is a more granular process that aims to identify and justify expenditures. Zero-based budgeting is also more involved, however, so the costs of the process itself must be weighed against the savings it might identify. ## What Is Zero-Based Budgeting? Zero-based budgeting was created in the late 1960s by former Texas Instruments account manager Peter Pyhrr. [...] Zero-based budgeting starts at zero, unlike traditional budgeting. It justifies each expense for a reporting period. Zero-based budgeting starts from scratch, analyzing each granular need of the company instead of using the incremental budgeting increases found in traditional budgeting. This essentially allows for a strategic, top-down approach to analyze the performance of a given project. ## What Are the Advantages of Zero-Based Budgeting?

• What is Zero-Based Budgeting (ZBB)? | Anaplan Blog

  Zero-based budgeting (ZBB) is the process of building your annual budget from zero each year to verify that all components are cost-effective, relevant, and drive improved savings. Implemented effectively, ZBB is a cost discipline enabling businesses to improve resource planning, employee engagement, and organizational collaboration.

• Zero-Based Budgeting: What It Is And How It Works - NerdWallet

  » MORE: How to choose the right budget system ## What is zero-based budgeting? Zero-based budgeting is a method that has you allocate all of your money to expenses for needs and wants, as well as short- and long-term savings and debt payments. The goal is that your income minus your expenditures equals zero by the end of the month. [...] Entrepreneur Good Morning America Nasdaq.com The Associated Press The zero-based budgeting method, also known as the ZBB budget, encourages you to use every penny of your monthly income. But that doesn’t mean spending it on a shopping spree. Important goals, such as saving money and paying off debt — as well as spending on fun stuff — are all part of the plan. The idea behind the zero-based budget, sometimes also called the zero-sum budget, is to give every cent a purpose.

• Zero-based budgeting | British Business Bank

  Zero-based budgeting means budgeting by justifying and approving all expenses for each accounting period, rather than basing it on your past spending. By starting from a 'zero base' at the beginning of each budget, you can create a really effective process for analysing and deciding where to allocate your funds. It is essentially a way of improving return on investment (ROI) across your business. ## Who developed it?

Zero-based budgeting (ZBB) is a budgeting method where all expenses must be justified and approved in each new budget period. Developed by Peter Pyhrr in the 1970s, the organization's needs and costs are analyzed by starting from a "zero base" (i.e., no funding allocation) at the beginning of every period. The claimed advantage is a more efficient use of resources, to determine if services can be achieved at a lower cost. However, this putative saving comes at the cost of a complete restructure every budget cycle, which carries associated costs. Although used at least partially in both government and the private sector, there is some doubt whether ZBB has ever been utilized to its fullest extent in any organisation.