Zero-based budgeting (ZBB) requires every department to justify its spending from scratch each cycle, rather than simply adjusting last year's figures upward. Finance directors at mid-sized companies often champion it as a discipline tool, and it does force conversations that incremental budgeting quietly avoids.
Where ZBB Actually Helps
Departments with variable or project-driven costs benefit most. Marketing, IT infrastructure, and logistics teams tend to carry legacy spend that nobody questions until ZBB forces the issue. A manufacturing firm that adopted ZBB for its operational divisions found three recurring vendor contracts that had outlived their original purpose by roughly two years.
The Honest Drawbacks
ZBB is time-intensive. Finance teams in organisations with more than 15 cost centres typically spend six to eight weeks on a ZBB cycle versus two to three for incremental approaches. That labour cost is real and rarely factored into the decision. Staff morale in departments that feel perpetually under scrutiny can also dip noticeably.
ZBB works best as a periodic reset rather than an annual default. Running it every three to four years in targeted divisions tends to produce better outcomes than applying it universally every year.
Quick pros and cons summary
Pros: eliminates legacy waste, forces strategic alignment, surfaces hidden costs. Cons: high time cost, requires skilled facilitators, can create internal friction if poorly managed.