What Is Zero-Base Budgeting?

Reviewing Finances From the Bottom Up

What Is Zero-Base Budgeting? - Reviewing Finances From the Bottom Up

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Start afresh with your budget every year.

Imagine that you're planning a household budget. You probably begin by compiling a list of all your expenses and estimating how much you spend on each one. You prioritize the necessities, such as monthly mortgage payments, groceries, fuel, clothes, and utilities, but you also want to plan for other costs, like dining out, gifts and holidays.

You can use the same principle when you prepare a budget for your team, department or organization, and this is called "zero-base budgeting." It is the process of compiling all your expenditure from scratch, rather than looking at what you can cut from or add to your previous year's budget.

In this article, we'll look at what zero-base budgeting is, we'll identify its advantages and disadvantages, and we'll explore the role that managers play in implementing it.

What Is Zero-Base Budgeting?

Peter A. Pyhrr developed zero-base budgeting (also known as "zero-based budgeting" or "ZBB") in the 1960s, and implemented it at Texas Instruments. In 1970, he wrote a Harvard Business Review article about it, and it quickly gained a following. After Pyhrr published his 1977 book, Zero-Base Budgeting, President Jimmy Carter invited him to the White House to establish ZBB throughout the U.S. federal government.

However, the tool was subsequently criticized for being impractical and time consuming, and it fell into obscurity. Despite this, increasing numbers of organizations have started using it over the last few years, and it has experienced a renewed popularity....

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