zero-based budgeting


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Zero Based Budgeting

A system of budgeting where each department or division of a company must justify all expenditures and allocations rather than simply increases over the previous fiscal year. That is, the budget is made with every department starting at zero dollars to spend, and each department must demonstrate need for what it wants to receive. Zero-based budgeting is advantageous because it is more detail-oriented than other forms of budgeting; among other things, it makes it easier to detect and eliminate over-inflated budgets. On the other hand, zero-based budgeting is more difficult and time consuming to put together and often has a bias toward departments that directly produce revenue instead of departments like R&D.

zero-based budgeting

a management accounting technique that seeks to re-examine and challenge the assumptions underlying a firm's costs. Zero-based BUDGETING involves preparing from scratch a budget for each company department, starting from the basic premise that each department's budget is zero, then justifying every activity and its associated expenditure before including it in the budget. This contrasts with conventional budgeting, where departmental budgets are often based on last year's budget suitably updated. The purpose of this process is to identify and remove inefficient or obsolete activities within the firm.
References in periodicals archive ?
Live within our means while providing high quality services through zero-based budgeting, lean thinking and continuous improvement ?
Jane Nelson, R-Flower Mound, used her post as Senate Finance Committee chairwoman to order a pilot program in zero-based budgeting at the Texas Education Agency.
For instance, in a 2014 study, McKinsey estimated that, when properly implemented, zero-based budgeting can reduce sales, general, and administrative costs by 10% to 25%, often within as little as six months.
This initiative is in line with the medium-term 2014-2016 plan for both federal entities and independent bodies, and follows the UAE Cabinet's Resolution No (1/181) for 2008, which mandates the ministries and federal entities to prepare the general federal budget on the basis of a three-year medium-term plan; adopt the principles of a zero-based budgeting system; and work as per the rules and regulations of the consolidated financial procedures manual.
1/181) for 2008, which mandates the ministries and federal entities to: Prepare the general federal budget on the basis of a three year medium term plan; adopt the principles of a zero-based budgeting system; and work as per the rules and regulations of the consolidated financial procedures manual.
This initiative is in line with the medium term 2014-2016 plan for both federal entities and independent bodies, and follows the UAE Cabinet's Resolution No (1/181) for 2008, which mandates the ministries and federal entities to prepare the general federal budget on the basis of a three year medium term plan, adopt the principles of a zero-based budgeting system and work as per the rules and regulations of the consolidated financial procedures manual, Ministry of Finance said in a statement on Sunday.
Under the leadership of President Aquino, the DBM has helmed several budgetary reforms, including Zero-Based Budgeting, the disaggregation of lump-sum funds, Grassroots Participatory Budgeting (previously known as Bottom-Up Budgeting), Performance-Informed Budgeting, and the General Appropriations Act (GAA)-as-Release-Document regime, as well as other information technology and digitization initiatives.
In Kentucky at the Louisville Courier-Journal, Executive Editor Neil Budde took zero-based budgeting to heart: rather than cutting out a lot of relatively inexpensive reporters in order to meet the budget he was given by owner Gannett Co.
The Report comprises of various proposals for the Budget 2014-15 including bringing structural reforms in taxation system, reducing the current expenditures by reducing size of the federal government, zero-based budgeting to determine the contribution of the existing autonomous organizations and balancing of debt portfolio.
The rest of the plan builds upon practices already in place, including long-term budget planning, zero-based budgeting, a transparent budget process and quarterly financial planning, and a commitment to plan accordingly when grants are factored into the budget, as they eventually expire.
Individual component replacement frequencies may be used to support zero-based budgeting activities.