Zero-based budgeting (ZBB) is a budgeting methodology in which every expense in a new budget period must be fully justified from scratch — starting from a zero base — regardless of whether that expense existed in previous budgets. Unlike traditional incremental budgeting (which takes the prior year's budget as the baseline and adjusts it upward or downward), ZBB requires each department or cost centre to build its budget by justifying every activity and expenditure from first principles, based on current needs and strategic priorities. ZBB encourages rigorous cost discipline, identifies and eliminates inefficiencies embedded in historical budgets, and ensures that resources are allocated to the highest-value activities. It has been adopted by several large global and Indian corporations — including Hindustan Unilever — as a tool for structural cost reduction. For investors and analysts on Ventura Securities evaluating companies that announce ZBB implementations, it is typically a positive signal of management's commitment to cost efficiency and margin improvement — though effective execution requires significant organisational change management and may involve short-term restructuring costs before the cost savings materialise.
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