Zero-based budgeting is a budgeting method in which starting fro zero every expense is justified based on its merits.
In other words, no reference is made to the budget of the previous year and the new budget starts with a zero base.
In India, it was first introduced in 1986 to determine expenditure budget. It was developed by Peter Phyrr in the year 1969.
The goal of ZBB is to identify and eliminate frivolous/redundant expenses and focus on the priorities.
Advantages:
- Scrutiny of all the expenses leads to better cost control and effective resource allocation.
- Greater accountability and increased efficiency in achieving budgetary goals.
- ZBB encourages the organisations to think creatively and innovate to achieve their goals.
However, it is a time-consuming process and needs immense experience to justify every line item in the budget. It is highly complex, expensive and involves excessive paperwork.
