Zero-Based Budgeting (ZBB)
A budgeting process where every expense within an organization must be justified for each new period, essentially starting from a "zero base."
Unlike traditional budgeting methods that adjust previous budgets to account for new expenses, ZBB requires departments to justify every dollar of their requested budget regardless of past expenditures. This approach promotes cost efficiency and financial discipline by compelling managers to rigorously evaluate the necessity and cost-effectiveness of each expense. ZBB encourages organizations to allocate resources based on current needs rather than historical expenditures, facilitating more strategic resource allocation that aligns with organizational goals and objectives.
This methodology enhances operational efficiency by eliminating unnecessary costs, fostering a culture of cost awareness and accountability among employees, and enabling companies to reallocate savings to more impactful areas. Implementing ZBB can be complex and resource-intensive but offers a powerful tool for optimizing financial performance and strategic planning.
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