Zero-based budgeting

Zero-based budgeting is an approach to planning and decision-making that reverses the working process of traditional budgeting. In traditional incremental budgeting, departmental managers justify only variances versus past years based on the assumption that the "baseline" is automatically approved. By contrast, in zero-based budgeting, every line item of the budget, rather than only the changes, must be approved. Zero-based budgeting requires that the budget request be re-evaluated thoroughly, starting from the zero-base; this involves preparation of a fresh budget every year without reference to the past. This process is independent of whether the total budget or specific line items are increasing or decreasing.