American Institute of Certified Planners (AICP) Practice Exam

What does ZBB stand for in budget management?

1. Zero Based Budgeting.

2. Zero Benefit Budgeting.

3. Zero-based Budgeting Review.

4. Zero Budgeting Basis.

The correct answer is: Zero Based Budgeting.

Zero Based Budgeting (ZBB) is a budgeting approach that requires all expenses to be justified from scratch for each new period, rather than just adjusting the previous year’s budget. This method contrasts with traditional budgeting approaches, where the previous year's budget is the starting point and adjustments are made based on anticipated changes. In Zero Based Budgeting, each department must develop its budget from a "zero base," meaning that all functions are analyzed for their needs and costs. Budgets are built around what is needed for the upcoming period, regardless of previous spending patterns. This encourages efficient allocation of resources and can lead to more strategic decision-making, as it compels organizations to consider the value and rationale of every expense. This approach is particularly useful in environments where resources are limited, and organizations need to prioritize their spending based on current goals and needs, rather than historical spending alone. It can also foster a culture of accountability, as managers must substantiate their budget requests with clear justification.