What is a key characteristic of a zero-based budget?

A key characteristic of a zero-based budget is that all expenditures must be justified starting from zero dollars. This approach requires each department or program to build its budget from the ground up, rather than simply adjusting the previous year’s budget. Every expense must be analyzed and justified as necessary for the upcoming budget period, ensuring that resources are allocated based on current needs and priorities rather than historical spending patterns.

This method promotes efficiency and can help identify and eliminate wasteful or unnecessary expenditures, ultimately aligning the budget more closely with the organization's goals and strategic plan. By mandating that every dollar be accounted for, a zero-based budget encourages careful consideration of spending versus value, making it a proactive approach to financial management.