Zero-based budgeting is a fundamental technique in finance and accounting. The concept explains the advantages and drawbacks of zero-based budgeting and provides a useful set of steps to guide managers and practitioners in implementing the technique successfully.
Zero-based Budgeting Definition
Zero-based budgeting (ZBB) is the practice of justifying budgeted expenditure in relation to the performance to be achieved, but without reference to pre-existing plans or achievements (Fopp, 1997). ZBB rests on the philosophy that all spending needs to be justified. Each part of a company starts from a zero base each year and then must justify the budget it requires. Top management should only sanction the budget when it is convinced that the proposed activities represent ‘value for money’ (Dropkin et al., 2007).
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- Bloomberg, (2006) InBev Profits Rises; Job Cuts to Be Sped Up in Europe, 27 February 2006.
- Buttonwood, (2004) What Exactly is a Best Practice?, Business Credit, Vol. 106 (1), pp. 39-46.
- CIMA (2005) CIMA Official Terminology, The Chartered Institute of Management Accountants, Oxford, UK.
- Craig, F,, Schlimpert, T., and Paradikes, J., (2006) Chief Nuclear Officers Strive to Optimise Plant Costs, Electric Light & Power, September, Available at: http://uaelp.pennnet.com/display_article/273288/34/ARTCL/none/none/1/Chief-Nuclear-Officers-Strive-to-Optimize-Plant-Costs/
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