Zero-based budgeting (ZBB) is a financial planning technique that resets the cost base of an organization to zero. It is a bottom-up approach that involves justifying each line item based on necessity rather than reverting to the prior period’s actuals. ZBB has been used since the 1970s to help companies scrutinize costs, cut unnecessary expenses, and align funding with strategic priorities. ZBB often gains momentum during times of economic instability, as it did during the financial crisis of 2008.
More recently, the economic fallout from COVID-19 is generating dialogue around ZBB for its promise of cost reduction and increased agility. While the economic environment remains uncertain, traditional incremental budgeting will not deliver adequate cost control in a dynamic world of economic volatility, disruptive technologies and fierce competition.