Zero-based budgeting (ZBB) is a method of budgeting in which all
expenses must be justified for each new period. Zero-based budgeting
starts from a "zero base," and every function within an organization is
analyzed for its needs and costs. Budgets
are then built around what is needed for the upcoming period,
regardless of whether the budget is higher or lower than the previous
one.
Zero-based budgeting originated in the 1970s. Many businesses
will budget and plan out things to maintain financials. In the past,
businesses would only look at specific things and would assume that
everything is already in place and does not need to be double-checked.
However, in zero-based budgeting, everything that is to be budgeted
needs to be approved. Since zero-based budgeting requires an approval
for budgeting, this means that budgets are started from a zero-base,
with a fresh decision on everything being made every year. 