What characterizes a zero-based budget?

A zero-based budget is characterized by the requirement that all expenses must be justified for each new period starting from a baseline of zero. This means that instead of simply rolling over the previous year's budget and making incremental adjustments, every department or program must provide a rationale for its budget requests. This approach encourages a thorough examination of the needs and priorities of the organization, as it focuses on current and future expenses rather than historical spending patterns.

By requiring justification for each expense, organizations can identify unnecessary costs and allocate resources more effectively, ensuring that funds are directed toward activities that align with strategic goals. This method promotes accountability and can lead to more efficient use of resources, as it challenges the assumptions that underlie ongoing expenditures. In contrast, options that involve carrying over previous expenses or projecting based on past trends provide less incentive to reevaluate spending decisions and prioritize resource allocation more thoughtfully.