What is Zero Based Budgeting?

Zero Based Budgeting: ZBB is defined as ‘a method of budgeting which requires each cost element to be specifically justified, as though the activities to which the budget relates were being undertaken for the first time. Without approval, the budget allowance is zero’.

Zero – base budgeting is so called because it requires each budget to be prepared and justified from zero, instead of simple using last year’s budget as a base. Incremental level of expenditure on each activity are evaluated according to the resulting incremental benefits. Available resources are then allocated where they can be used most effectively. Zero based budgeting is a decision oriented approach .

In Zero Based budgeting no reference is made to previous level expenditure. Zero based budgeting is completely indifferent to whether total budget is increasing or decreasing. 

CIMA has defined it “as a method of budgeting whereby all activities are revaluated each time a budget is set."
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