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Zero-base Budgeting

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Zero-base budgeting is a budgeting method that management uses which requires them to justify each expense every year. In other words, zero-base budgeting does not consider the priorities and allocations of previous years and how they were beneficial or detrimental that year; zero-base budgeting essentially says that all budget headings have a value of zero - requiring the re-evaluation (justification) of all expenditures. Any new programs, for instance, are placed on equal footing with existing programs, in zero-base budgeting. Zero-base budgeting emphasizes management's responsibility to evaluate, plan and budget effectively. Zero-base budgeting typically requires the approval of senior management and executives, so managers are forced to scrutinize all expenditures in zero-base budgeting to make sure that the top level employees will back the budget itself. Such detailed evaluation means that zero-base budgeting supports comprehensive planning and shared decision-making, which can lead to the more effective and efficient use of company resources.



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