Zero Based Budgeting

Budget

Budgeting is the process of translating plans, informed by forecasts, into daily business operations. Managers budget by using forecast expectations to set limits for costs and make decisions about investments.

Budgets are extremely important to guide decisions, communicate expectations to employees, and to control costs.

A budget is a quantitative expression of a plan for a defined period of time.

OR

A budget is a quantified financial plan for a forthcoming accounting period.

zero based budgeting

ZBB is a method for preparing cash flow budgets and operating plans which every year must start from scratch with no pre-authorized funds. Unlike the traditional budgeting in which past sales and expenditure trends are assumed to continue. ZBB requires each activity to be justified on the basis of cost-benefit analysis, assumes that no present commitment exists, and that there is no balance to be carried forward.