Which budgeting method starts from scratch and requires justification for all expenses?

Zero-based budgeting is a method that begins with a "clean slate" for each new budgeting period. Unlike traditional budgeting approaches, which often rely on previous year’s budget as a starting point and adjust for inflation or changes, zero-based budgeting requires that all expenses must be justified for each new period. This means that every department starts from zero and must explain why any funding is necessary for their operations, regardless of past funding levels.

This method encourages efficiency and can lead to more cost-effective allocation of resources, as it forces decision-makers to critically evaluate each expense based on current needs and priorities rather than merely rolling over previous budgets. Given these characteristics, zero-based budgeting fosters accountability and ensures that all budgetary allocations align with the organization’s current goals and objectives.

Other budgeting methods, such as incremental budgeting, usually adjust existing budgets, and performance-based budgeting focuses on outcomes rather than requiring justification for all expenditures. Baseline budgeting typically involves continuing costs from a previous period with some adjustments, which does not involve starting from scratch.