Zero-based budgeting (ZBB) is a method of budgeting where each expense must be justified for every new period, regardless of whether the expense has been incurred in the past. In other words, ZBB is a budgeting method that starts from scratch every year, instead of simply adjusting the previous year’s budget.
Under ZBB, organizations identify and justify all expenses at the beginning of each budget cycle, rather than simply adjusting the previous year’s budget. This requires a thorough review of all expenses and a justification for their inclusion in the budget. As a result, the organization can better prioritize its expenses and allocate resources more effectively.
ZBB typically involves several steps, including:
Identifying the organization’s objectives and goals for the upcoming period.
Identifying all activities required to achieve these objectives.
Assigning costs to each activity.
Evaluating the necessity of each activity and determining which activities should be prioritized.
Allocating resources based on the prioritization of activities.
The benefits of ZBB include greater cost control and more effective allocation of resources. By starting from zero each year, organizations are forced to scrutinize all expenses and prioritize spending based on their goals and objectives. This can lead to more efficient use of resources and a better alignment of spending with the organization’s strategic priorities.
However, implementing ZBB can be time-consuming and resource-intensive, and may require significant changes to an organization’s budgeting processes. As a result, ZBB may not be suitable for all organizations or budget cycles. learn more about School Management System.