Zero-Based Budgeting
A budgeting method that builds each year's budget from zero, requiring every expense to be justified fresh — rather than starting from last year's budget and adjusting it.
Most organizations budget incrementally: take last year’s number, adjust for inflation or known changes, done. Zero-based budgeting rejects that shortcut entirely — every line item, every year, has to be rebuilt and justified from scratch based on actual planned activity, regardless of what was spent last year.
The payoff is that zero-based budgeting surfaces costs that have quietly become “just how we’ve always done it” — a subscription nobody uses anymore, a staffing level built for a program that’s since shrunk — that an incremental budget would have simply carried forward untouched, year after year.
The tradeoff is time: zero-based budgeting is significantly more labor-intensive than incremental budgeting, which is why many organizations use it selectively — applying it in full to certain departments each year on a rotating basis, rather than rebuilding the entire organizational budget from nothing every single cycle.
See also: Budget Variance, Variance Analysis