Zero-Based Budgeting (ZBB) is a budgeting methodology in which all expenses must be individually justified for each new period, starting from a zero base—without automatically resorting to historical spending data. Adopted by companies seeking greater financial control and elimination of waste, ZBB is especially relevant for IT operations that manage software contracts, licenses, and cloud infrastructure.
What is Zero-Based Budgeting (ZBB)?
In zero-based budgeting (ZBB), the budgeting process literally starts from scratch. Each area or cost center analyzes its actual needs for the next period and justifies each expense based on need, impact, and expected return—regardless of the amount allocated in the previous cycle. Unlike traditional incremental budgeting, zero-based budgeting eliminates the tendency to automatically replicate excesses and past decisions.
How does Zero-Based Budgeting work in practice?
The application of Zero-Based Budgeting (ZBB) follows a structured process in five steps:
- Definition of decision units: Each department becomes responsible for justifying its own expenses.
- Identification and description of expenses: All expenses are listed without considering historical values.
- Justification of costs: Each expense is explained based on need, impact, and expected return.
- Prioritization and allocation of resources: Resources are directed towards the most strategic activities.
- Approval and consolidation: The final budget is built based on the defined priorities.
When to use OBZ
Zero-based budgeting is essential for new companies that do not yet have a financial history and need to structure their budget based on their business plan. In more mature organizations, the common practice is to apply ZBB periodically—every three to five budget cycles—alternating with historically based budgets to balance rigor and agility.
It is especially recommended when the company is undergoing restructuring, there is an urgent need to reduce costs, the market is experiencing economic instability, or the business is growing rapidly and contracts and licenses need to be reassessed.
Zero-Based Budgeting applied to software asset management (SAM)
In software license and asset management, Zero-Based Budgeting (ZBB) has a direct impact. Software contracts—especially in environments with hundreds of SaaS applications—tend to accumulate underutilized licenses, automatically renewed contracts, and allocations that no longer reflect actual usage. The ZBB methodology, combined with best practices of... Software Asset Management (SAM), This forces a thorough review at each cycle.
Tools like ServiceNow ITAM offer the visibility needed for each cost center to justify its software expenses based on real usage data — making zero-based budgeting feasible in medium and large-scale IT operations.
Zero-based budgeting (ZBB) vs. traditional budgeting
| Criterion | Traditional Budget | Zero-Based Budgeting (ZBB) |
|---|---|---|
| Starting point | Spending history | Base zero |
| Justification | Variations compared to the previous year | Each expense individually |
| Risk | It perpetuates excesses and inefficiencies. | It requires more time and involvement. |
| Result | Predictable, but it could be inflated. | More efficient, more strategic |
Advantages of Zero-Based Budgeting
- Identifying and eliminating unnecessary costs.
- Resource allocation driven by strategic objectives.
- Expanding the strategic vision of managers
- Improved internal communication regarding priorities.
- Elimination of processes that do not add value.
- Greater autonomy and responsibility for managers in decision-making.
Challenges and limitations of OBZ
Zero-based budgeting (ZBB) requires greater involvement from managers, more time for budget preparation, and specific team training. In large companies without adequate budget management tools, the process can become excessively complex. Therefore, the adoption of platforms that centralize cost data—such as the module of... ITAM from ServiceNow for IT assets — significantly reduces the operational effort of zero-based budgeting.
4MATT — ServiceNow Elite Partner in Brazil, winner of the Technology Excellence Partner Award 2024–2025, with over 80 certified specialists — supports organizations in deploying ITAM and SAM on ServiceNow, creating the necessary database for OBZ to be accurately applied in complex IT environments.