Zero-Based Budgeting - ZBB


DEFINITION of 'Zero-Based Budgeting - ZBB'

A method of budgeting in which all expenses must be justified for each new period. Zero-based budgeting starts from a "zero base" and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one.

ZBB allows top-level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization, where costs can be first grouped, then measured against previous results and current expectations.


Loading the player...

BREAKING DOWN 'Zero-Based Budgeting - ZBB'

Because of its detail-oriented nature, zero-based budgeting may be a rolling process done over several years, with only a few functional areas reviewed at a time by managers or group leadership.

Zero-based budgeting can lower costs by avoiding blanket increases or decreases to a prior period's budget. It is, however, a time-consuming process that takes much longer than traditional, cost-based budgeting. The practice also favors areas that achieve direct revenues or production; their contributions are more easily justified than in departments such as client service and research and development.

  1. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  2. Budget Deficit

    A status of financial health in which expenditures exceed revenue. ...
  3. Budget Manual

    A set of instructions used within large organizations to prepare ...
  4. Activity-Based Budgeting - ABB

    A method of budgeting in which the activities that incur costs ...
  5. Cash Budget

    An estimation of the cash inflows and outflows for a business ...
  6. Expense

    1. The economic costs that a business incurs through its operations ...
Related Articles
  1. Budgeting

    This Is the Year to Start Budgeting

    Whether your issue is credit card debt, student loans (or the fact that Social Security isn't rising next year), it's time to learn how to build a budget.
  2. Budgeting

    What is Zero-Based Budgeting?

    Zero-based budgeting starts from a "zero base" and then every function within an organization is analyzed for its needs and costs.
  3. Budgeting

    6 Months To A Better Budget

    Can you have perfect abs in just six minutes a day? Maybe not, but you can have a rock-solid budget in six months.
  4. Entrepreneurship

    Run Your Finances Like A Business

    Think of yourself as your own little company. To make it run smoothly, you need to take a look at your books.
  5. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  6. Savings

    These 10 Habits Will Help You Reach Financial Freedom

    Learn 10 key habits for achieving financial freedom, including smart budgeting, staying abreast of new tax deductions and the importance of proper maintenance.
  7. Budgeting

    How Much Will it Cost to Become President In 2016?

    The 2016 race to the White House will largely be determined by who can spend the most money. Here is a look at how much it will cost to win the presidency.
  8. Budgeting

    Six Most Popular Hobbies You Can Do For Free

    Does your budget not allow you to have expensive hobbies? Here are six great ideas for occupying your free time without spending money.
  9. Home & Auto

    This Is How You Could Live in the Philippines on $1,000 a Month

    Consider what your life might be like in the Philippines on a $1,000 budget, and determine whether this Southeast Asian country is for you.
  10. Home & Auto

    This Is How You Could Live in Thailand on $1,000 a Month

    Discover what kind of life you can lead on $1,000 per month in Thailand, one of the top expatriate and tourist destinations in Southeast Asia.
  1. What are some tactics businesses can use to increase unlevered free cash flow?

    Unlevered free cash flow is defined as earnings before interest taxes, depreciation and amortization (EBITDA) less capital ... Read Full Answer >>
  2. Why does zero-based budgeting require ongoing evaluation and management?

    Zero-based budgeting must have ongoing evaluation and management due to the fact a zero-based budget requires management ... Read Full Answer >>
  3. How can a growing business avoid stagnation when using zero-based budgeting?

    Zero-based budgeting is commonly used by companies to review expenses in their annual budgets and create cost management ... Read Full Answer >>
  4. How does zero-based budgeting help lower operating costs?

    Zero-based budgeting helps lower costs by reducing unproductive spending. Zero-based budgeting is a rigorous process that ... Read Full Answer >>
  5. How is marginal analysis used in making an investment decision?

    Zero-based budgeting is a simple, effective concept: keep track of every dollar and put all of your money to use. The goal ... Read Full Answer >>
  6. What are the revenue recognition criteria in accrual accounting?

    The major advantages of zero-based budgeting are flexible budgets, focused operations, lower costs and more disciplined execution, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Flier

    The slang term for a decision to invest in highly speculative investments.
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center