|
ZBB, or Zero-Based Budgeting, is a budgeting method where justification is required each time a new budget is prepared. In ZBB, expenditures must be justified during every budgeting period. Under ZBB, budgeting begins with no pre-authorized funds. The ZBB process focuses on the entire budgeting process, unlike the traditional budgeting process that focuses on only incremental changes to the baseline budget. ZBB has several benefits. Under ZBB, the preparer is forced to completely understand an entity’s operations to plan for the upcoming year. Under ZBB, the budget preparer becomes knowledgeable about the organization and its operations. ZBB also ensures that budgets are prepared based on current and relevant assumptions. ZBB also has several disadvantages, the most significant being the time and effort involved. ZBB promotes the justification for routine operations and the effects of cyclical trends. ZBB is encouraged for government-related budgets to avoid the assumption that this year's spending should be equivalent to last year's spending and because expenditures under such budgets can easily get out of control. |
