What is zero-based budgeting?
Zero-based budgeting (ZBB) requires every cost to be justified from a base of zero for each new period, based on needs and value rather than history. It is often used for discretionary and overhead costs.
The ZBB process
- Define cost categories (“decision units”) — e.g. marketing, travel, utilities.
- For each, describe the activities and the value they deliver.
- Create options: minimum level, current level, enhanced level.
- Rank all options across the business by value.
- Fund from the top down until the budget is used.
- Track spending against the new baseline.
ZBB vs incremental budgeting
| Zero-based | Incremental | |
|---|---|---|
| Starting point | Zero | Last year's budget |
| Effort | High | Low |
| Finds waste | Yes | Rarely |
| Best for | Overheads, turnarounds | Stable, predictable costs |
Common mistakes to avoid
- Trying ZBB on every cost line in year one.
- Not having good spending data to start from.
- Cutting value-adding costs along with waste.
How DOOfy helps
ZBB needs a clear picture of where money actually goes. AIMOS One breaks down spending by category, outlet and activity from live data, giving each decision unit a factual starting point.
Frequently asked questions
What is the main advantage of zero-based budgeting?
It challenges every cost, removing legacy spending that no longer adds value.
What is the main disadvantage?
It takes more time and data than incremental budgeting, so many companies apply it to selected cost areas or every few years.