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ZERO - BASEDBUDGETING
DEFINITION
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 The term ‘zero based budgeting’ is sometimes used in thepersonal finance to describe the practice of budgetingevery dollar of income received, and then adjusting somepart of the budget downward for every other part thatneeds to be adjusted upward’
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Zero Based Budgeting is a technique that sets all budgetsto nil at the beginning of the year or period and requiresfrom the departments that they justify all of theirexpenditures, not just those exceeding the budget. Moneyis allocated to the departments based on merit and notbased on the previous year budget plus or minus somepercentage such as in many traditional budgetingsystems.
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Zero-based budgeting is a technique of planning anddecision-making which reverses the working process of traditionalbudgeting. In traditional incrementalbudgeting, departmental managers justify only increasesover the previous year budget and what has been alreadyspent is automatically sanctioned. No reference is made tothe previous level of expenditure. By contrast, in zero-based budgeting, every department function is reviewedcomprehensively and all expenditures must be approved,rather than only increases. Zero-based budgeting requiresthe budget request be justified in complete detail by eachdivision manager starting from the zero-base. The zero-base is indifferent to whether the total budget isincreasing or decreasing.
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Zero based budgeting also refers to the identification of atask or tasks and then funding resources to complete thetask independent of current resourcing.
AIM
 
Its aim is to achieve is an optimal allocation of resources thatincremental and other budgeting systems cannot achieve.Managers are asked to identify and justify their areas of work interms of decision packages prior to starting the work.
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IMPORTANCE
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Zero-Base-Budgeting was pioneered in the early 60s at Texas Instruments by Peter Phyrr.
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ZBB is a financial and management strategy to help policymakers achieve more cost- effective delivery of publicservices.
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 The concept of zero-base budgeting has been utilizedsuccessfully by private corporations and recommended forapplication to the federal budget for government use, thisplanning and budget techniques endeavors to redirectefforts and funds from lower priority current programs tohigher priority new programs efficiency and effectiveness,and reduce spending.
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 Traditionally, most government budgets have beenconstructed by adding to the current expenditure levelsuch amounts as seem warranted by circumstances jurisdictions, expenditures for the coming year will exceedthose of the current year. For this reason, most attentionis directed to the “increments” that have been added tothis year’s expenditures to reach the proposed budgettotal. A major flaw in incremental budgeting is that itassumes the current year’s expenditure level is justifiableand this may not be true. It may be either too low or toohigh.
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Zero-base budgeting, on the other hand, is a detailed andconcentrated study of those activities that might beconsidered costly or ineffective and that continue to befunded primarily because they are never examined.
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It may be useful for one or more government programs tobe subjected to zero based budgeting analysis every year.In such an analysis it is not assumed that the presentspending for a particular program is justified. On thecontrary, the wisdom of spending any money at all on theprogram is examined. These questions are typical for analyses of this type:
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• Is there any measurable evidence of the value of the program under review?• Are the goals and objectives of the programimportant enough to warrant the expendituresbeing made?• What would happen if the program were notprovided at all?• Are there other less costly and more effectobjectives?• Where would the program fit in if all programswere displayed in order of importance?
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Would the benefits be greater if a portion of thefunds spent on under review were used insteadfor other programs?An important element of this budgeting procedure is that itforces prioritization of government programs and activities. Withthe prospect of insufficient revenue for matching the demand of spending, it is useful for the government to have a ranking of programs and activities based on proven effectiveness as wellas suggested alternatives to expensive or ineffective programs.
STEPS OF ZERO - BASED BUDGETING
 There are two steps to the process of zero based budgeting. The first step is to develop what is called as “decisionpackages”. The second is to rank the decision packages. The decisionpackage is a document that identifies and explains the specificand goals and objectives, measurement of performance, costs,benefits and alternative courses of action.Ranking of decision packages is then accomplished at eachmanagement level until a comprehensive agency wide rankingis obtained. Conceptually, zero-base budgeting is a systemiclogical approach to allocating resources where they will do themost good.
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