Zero-Based Budgeting (ZBB)

Zero-based budgeting (ZBB) is a financial management strategy that involves allocating funds for each expense category from scratch or “zero bases” at the beginning of each budgeting period. In other words, ZBB requires justifying every expense, regardless of whether it was included in the previous budget. The goal of ZBB is to optimize resource allocation and reduce unnecessary expenses.

In a zero-based budget, each expense category is evaluated based on its necessity and the expected return on investment. If an expense is deemed unnecessary or not providing sufficient value, it may be eliminated from the budget altogether. This method can assist individuals and businesses in identifying areas where they are potentially overspending or allocating resources inefficiently.

While zero-based budgeting requires more effort and analysis than traditional budgeting methods, it can be a useful tool for optimizing financial resources and improving financial performance. It can help individuals and businesses make more informed decisions about how to allocate their resources and prioritize their spending. However, zero-based budgeting is not necessarily appropriate for all situations, and some organizations may find it too time-consuming or complex to implement.