This budgeting method analyzes an organization's needs and costs by starting from a "zero base" (meaning no funding allocation) at the beginning of every period.
The time and training required for zero-based budgeting may mean managerial staff do not react to sudden changes to their operations, such as shifting markets or a departmental emergency.
[4] Jimmy Carter, the then Governor of Georgia, applied the same method to the public sector while he prepared the state's 1973 fiscal budget.
Under ZBB, agencies were expected to set priorities based on the program results that could be achieved at alternative spending levels, one of which was to be below current funding.
However, in many large agencies a complete zero-base review of all program elements during one budget period is not feasible and would result in excessive paperwork.
In many cases, program staffers were tasked to look for alternative models that could deliver services more efficiently at lower funding levels.
"Some participants in the budget process, as well as other observers, attributed certain program efficiencies, arising from the consideration of alternatives, to ZBB.
"[6] This element of the ZBB budgeting process remained in effect through the Reagan, Bush and early Clinton administrations before being eliminated in 1994.
There is no evidence that public sector ZBB has ever included "building budgets from the bottom up" and "reviewing every invoice" as part of the analysis.
Sarant's definition of the zero-base, based on the federal training experience, is the minimum level of funding necessary to keep a program alive.
Even Georgia, where Governor Jimmy Carter introduced ZBB to state budgeting in 1971, employed a much-modified form.
Officials in the Hubei province and the DBR began looking for ways to incorporate the best parts of ZBB and form a new budgeting system that would work for their needs.
TBB, as a modified form of ZBB, has worked out moderately well for the Chinese government in Hubei over the years, but many problems still face the budgeting system.
Some number of issues ranging from the absence of a unified budget and certain expenditures that are somehow exempt from the ZBB process, to the influence or effects of political factors have been widely noted.
Two notable reforms to the ZBB process include having departments submit budget requests and the use of sunset legislation.
Sunset legislation places certain programs implemented or that are currently being funded under review to determine efficiency, effectiveness and necessity.
They employed similar cost management concepts in their subsequent acquisitions: Burger King, Tim Hortons, Heinz, Kraft Foods, and Popeyes Louisiana Kitchen.
It triggered measures as drastic as cutting hundreds of management jobs and jettisoning corporate jets, to as simple as requiring employees to ask to make photocopies.
[12] Following the 2015 merger of Kraft and Heinz, some analysts and former employees blamed 3G Capital's use of ZBB for the company's poor performance.
Another case was that of a prominent commercial bank, which unlocked a large sum of money and reinvested it in "going digital" and a healthcare company that achieved savings of £1.2bn (€1.36bn) in three years.
In its 2017 first-half results, Unilever reported that ZBB was improving its marketing productivity and streamlining its advertising spending, while also reducing unnecessary overhead costs.
Zero-based budgeting helps more money to flow to stockholders than into unused departments, over-funded programs, and wasteful spending habits.