Zero-Based Budgeting

Zero-Based Budgeting (ZBB) is a budgeting methodology. Its primary purpose is to align organizational spending with the organization’s overall strategic vision. A ZBB approach requires organizations to build their budget from zero each period, validate all components in the budget are necessary and aligned to the organization’s strategic goals. Implemented correctly, a ZBB culture should have budget owners justifying which expenses to keep, versus traditional budgeting, where budget owners are justifying the expenses to cut.

Why Zero-Based Budgeting?

In a traditional budget process (where the next period’s budget is based on prior-period actuals), a complacent culture can be created. Budget owners look at what budget they can cut, not the budget they need to complete company initiatives. ZBB is powerful because it creates an environment where budget owners are always evaluating if the budget they are requesting is aligned with their strategic goals.

What Took So Long and Why Now?

The origin of ZBB can be traced back to the 1970s. Spreadsheets alone weren’t enough to support the speed and agility that planning processes require in a ZBB culture. Over the last few years, ZBB has experienced a comeback, primarily due to advancements Continuous Planning technologies. Now the technology exists to support the speed and agility that ZBB requires.