What it is:
ZBB is short for
How it works/Example:
There are many ways to create company budgets. Let's take the marketing department of Company XYZ as an example. Last year?
One way might be to simply give the department $1 million again, but this might not reflect the changes in the marketing programs next year, the need to hire more marketing people due to additional or other .
Another way might be to give all departments a 10% increase or decrease based on what the board of directors would like per share to be next year. This would give the department $1.1 million or $900,000 depending on which way the board goes.
A third way would be , whereby the department starts with no at all and then must justify every person and expense that should be included in the budget for the coming year. This might result in a budget of, say, $1,024,314, which is higher than last year but reflective of the actual needs next year.
Why it matters:
Employees and managers often view budgeting as a game to beat rather than a cooperative planning exercise that incorporates goals and expectations. Many of us have heard of "slush
Some critics argue that justifying costs unduly penalizes functions that don't generate . It is also more analytical and time-consuming than budgeting methods that simply make blanket changes to last year's budget, thus requiring managers to be more educated about the financial aspects of their department operations.