How do zero-based budgets differ from traditional budgets?

Zero-based budgets differ from traditional budgets as they require every expense to be justified for each new period.

In traditional budgeting, the budget for the next period is often based on the budget of the previous period, with adjustments made for inflation, changes in revenue, or other factors. This method assumes that the previous budget was efficient and that the same expenses will continue to be necessary. It's a method that is often used because it's straightforward and doesn't require a lot of time or resources.

On the other hand, zero-based budgeting (ZBB) starts from scratch ("zero base") every time a budget is prepared. This means that every single expense must be justified and approved, regardless of whether it was in the previous budget or not. The idea behind this is to prevent wasteful spending and to ensure that every pound spent is contributing to the achievement of the organisation's objectives.

Zero-based budgeting can be more time-consuming and resource-intensive than traditional budgeting. This is because it requires a detailed review and justification of every expense. However, it can also lead to more efficient use of resources, as it forces managers to critically evaluate the cost-effectiveness and necessity of each expense.

In summary, while traditional budgeting is based on the previous period's budget and assumes that all expenses will continue to be necessary, zero-based budgeting requires every expense to be justified for each new period. This can lead to a more efficient use of resources, but it can also be more time-consuming and require more resources to implement.