Which description best captures Zero-Based Budgeting's method?

• A. Build programs from the ground up based on decision packages and ranking
• B. Increment from prior year without justification
• C. Ignore cost/benefit analysis
• D. Allocate funds evenly across programs

Answer: (A)

Zero-based budgeting starts from a clean slate: every program, service, or expense must be justified as if it were new, instead of simply rolling forward last year’s funding. Funding is determined by assembling decision packages that describe each option, its costs, and its expected benefits, and then ranking these packages so resources go to the most valuable uses. This approach forces careful analysis of what a program actually costs and what outcomes it delivers, often including the possibility of a no-action or reduced-service option to test whether funding is truly necessary. The result is a budget built up from ground level with priorities set by value and impact, rather than by historical amounts.

This is different from simply increasing or decreasing the prior year’s budget without justification (incremental budgeting), and it relies on evaluating costs and benefits rather than ignoring them. It also doesn’t distribute funds evenly across programs, since funding is guided by the relative value and impact of each package.