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For example, if companies rely heavily on maintaining a positive, vibrant, and accessible environment for their employees but all the expenses to maintain this environment were eliminated due to the zero-based budget process, the company’s overall culture may change. Under ZBB, agencies were expected to set priorities based on the program results that could be achieved at alternative spending levels, one of which was to be below current funding. For most US governments, the main users of ZBB are legislatures, government agencies, and the executive. The concept itself was invented in the 1960s, but ZBB was slow to gain traction, in part because, until relatively recently, budgeting processes have been primarily paper based.

This budgeting method analyzes an organization's needs and costs by starting from a "zero base" (meaning no funding allocation) at the beginning of every period. Pyhrr developed the idea of zero-based budgeting in 1969 while he was an account manager at Texas Instruments in the US. In 1977, he wrote his seminal book on the subject, ‘Zero-Base Budgeting: A Practical Management Tool for Evaluating Expenses’. While zero-based budgeting examines all expenses, traditional budgeting only examines proposed new expenses. Through this exercise, executives found duplicate spending in some areas—primarily in misaligned talent.But in its classic form – begin all budget evaluations from zero – ZBB is as unworkable as it ever was. Two notable reforms to the ZBB process include having departments submit budget requests and the use of sunset legislation. But if you want to do ZBB annually and you want to succeed in this effort, you need to invest in a digital budgeting tool for the sake of efficiency and to gain deeper insights. Education funding levels are determined in many states partly by state and federal judicial decisions and state constitutional provisions, as well as by statutes.

Companies should focus on gaining visibility into where resources are allocated throughout the organization, determining staffing levels, and assessing role definitions.Statutes, obligations to local governments, requirements of the federal government, and other past decisions have many times created state funding commitments that are almost impossible to change in the short run. The concept of ZBB was first introduced to China at the beginning of the 1990s and was primarily focused on Hubei Province. ZBB is a highly effective business-planning tool to help a company identify and eliminate unnecessary costs, keep control of your spending, and focus on high-profit initiatives. It was during the 1990s that China began looking out for a new and modern form of budgeting for their country's nationwide budget reform, and ended up settling on ZBB. This information is taken into account during the second stage—identifying opportunities for process or operational improvements and redefining spending levels to reflect those initiatives.

Zero-based budgeting (ZBB) is a budgeting technique in which all expenses must be justified for a new period or year starting from zero, versus starting with the previous budget and adjusting it as needed. To view the site in its intended form and for the best user experience, download the latest version of your browser using the options below. According to Jun Ma, a professor at the University of Nebraska, the beginning years of ZBB in Hubei were a bit rocky as the DBR had not yet been implemented in all the state departments in Hubei. ZBB established within federal budgeting a requirement to: present alternative levels of funding; and link [them] to alternative results. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice.

Expenses are often reduced because ZBB helps to prevent the misallocation of resources that happens when a budget grows incrementally over time.