Certified Professional Public Buyer (CPPB) Practice Test

Which budgeting method starts with a 'zero base' each budget cycle?

1. Performance budgets

2. Zero-based budgets

3. Program budgets

4. Revised budgets

The correct answer is: Zero-based budgets

The budgeting method that starts with a 'zero base' each budget cycle is zero-based budgeting. In this approach, every department or project must justify its entire budget from scratch for each new period, rather than simply adjusting previous budgets up or down based on past expenditures. This means that rather than assuming past spending patterns and making incremental changes, zero-based budgeting requires that every expense be analyzed for its necessity and cost-effectiveness in the context of current goals and objectives. This method promotes a thorough evaluation of all projects and initiatives because it encourages managers to identify and allocate funds based on current and strategic importance rather than historical spending. As a result, it can lead to more efficient allocation of resources, ensuring that funds are applied only to departments or projects that are proven to deliver value.