What is a key characteristic of zero-based budgeting?

Zero-based budgeting is fundamentally characterized by its approach that starts from a "zero base," requiring all expenses to be justified for each new period. Unlike traditional budgeting methods, which often use the previous year’s budget as a baseline (which can perpetuate inefficiencies and outdated expenditures), zero-based budgeting necessitates a complete reevaluation of all costs. Every budget item must be justified, ensuring that all expenditures are aligned with current business goals and objectives, rather than simply carrying forward prior allocations.

This method promotes a disciplined allocation of resources, as it encourages managers to think critically about the necessity of their spending and prioritize activities that deliver the highest value. By mandating justification for all expenditures, zero-based budgeting enhances accountability and efficiency, potentially leading to cost savings and more strategic resource allocation within an organization.