American Institute of Certified Planners (AICP) Practice Exam

What is a key principle of ZBB?

1. It encourages continuous funding for all programs

2. It emphasizes ongoing performance reviews

3. It fosters understanding within all units of the organization

4. It focuses primarily on historical expenses

The correct answer is: It fosters understanding within all units of the organization

Zero-Based Budgeting (ZBB) is a budgeting approach that fundamentally differs from traditional budgeting methods by requiring each new budget cycle to start from a "zero base." This means that every department must justify its budget requests in full, rather than simply adjusting previous budgets based on historical spending. The principle of fostering understanding within all units of the organization is central to ZBB, as it demands that all team members understand the costs and benefits of their programs in order to receive funding. This encourages communication and transparency across departments since each unit must articulate its contributions and needs clearly. The focus on justifying every expense helps align organizational goals with budgeting, ensuring that funds are allocated based on current priorities rather than historical precedent. In contrast, some of the other choices emphasize concepts that do not align with the core of ZBB. Continuous funding for all programs goes against the essence of ZBB, which requires reassessment of all expenditures. Ongoing performance reviews are critical in many budgeting approaches, but ZBB specifically targets a fresh evaluation of all expenses. Lastly, while historical expenses might inform some decisions, they are not the focal point of ZBB, as it intentionally shifts the focus away from past spending patterns to current and future needs.