What does "zero-based budgeting" entail?

Zero-based budgeting involves justifying all expenses for each new period starting from a zero base. This means that every expense must be analyzed and approved based on its necessity and alignment with the organization's goals, rather than being influenced by past budgets or assumptions about regular expenses. Each department or project begins with no budget and must provide a rationale for each item they wish to include in the budget, ensuring that resources are allocated efficiently and effectively based on current needs and priorities. This approach fosters a more strategic allocation of funds, allowing organizations to respond dynamically to changing conditions rather than relying on historical spending patterns.