In this form of budgeting each expense must be justified for each new business period. So, budgeting starts at a “zero base” and every expense is looked at for its benefits and costs. The budgets are then formed based on what is needed for the coming business period, not dependent upon if the budget is higher or lower than the last period’s budget.

ZBB can decrease expenses by evaluating what is needed and what is not. However, it is much more time consuming than Cost-Based Budgeting, where only items where expenses increase are looked at.