American Institute of Certified Planners (AICP) Practice Exam

What component is essential for ensuring a project still requires resources during budgeting?

1. Zero Based Budgeting.

2. Estimated Return on Investment.

3. Annual Financial Review.

4. Projected Growth Analysis.

The correct answer is: Zero Based Budgeting.

Zero Based Budgeting is a budgeting approach that starts from a "zero base" and requires all expenses to be justified for each new period, rather than simply carrying over previous budgets. In this methodology, every function within an organization is analyzed for its needs and costs, ensuring that all resources are allocated based on necessity rather than historical expenditure. This is particularly essential for ensuring a project still requires resources during budgeting because it encourages a fresh evaluation of each project's needs on an annual basis. By requiring justification for every dollar spent, it confronts the assumptions of continued funding and can reveal whether resources are still necessary, based on current project goals and objectives. This approach helps organizations eliminate inefficiencies and redirect funds to more critical needs, thus ensuring that projects that genuinely require resources get the financial backing necessary for their success. Other options, like Estimated Return on Investment, can be useful for assessing potential benefits but do not primarily focus on resource allocation and justification. Similarly, Annual Financial Review and Projected Growth Analysis are important for oversight and long-term planning but do not provide the same rigorous examination of budgeting from the ground up as Zero Based Budgeting does.