A zero-based budget (ZBB) is a non-traditional type of budgeting process that forces a each section of a business or organization to justify needs and costs, and thus expenses each year. The zero-based budgeting approach assumes that the business will start each year at $0 for every category, which is where the "zero-based" name comes from.
In a traditional budget, the allowable expenses for one year are based on expenditures from the previous year. This budgeting process assumes that costs remain the same, or that costs plus inflation are reasonable ways to project costs for future years. The problem with this method of budgeting is that departments come to the end of a year and try to spend all the rest of their budgets, on the assumption that "if I don't use it, I'll lose it."
In contrast, zero-based budgeting makes doesn't look at what was budgeted and spent in previous years. In essence, a zero-based budget approach starts over each years with no reference to previous year budgets and expenditures.
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