5 Budget approaches

Here are five common budget approaches:

1. Zero-Based Budgeting (ZBB): Every expense must be justified for each new period. Managers start with a "zero base" and must prove why each amount should be spent. This is rigorous and time-consuming but can lead to significant cost savings.

2. Incremental Budgeting: This is the simplest approach. It involves taking the previous period's budget and adding or subtracting a percentage for the new period. It's easy to implement but can perpetuate inefficiencies from prior budgets.

3. Activity-Based Budgeting (ABB): This method focuses on the activities required to produce goods or services and the costs associated with those activities. It links costs to specific outputs, providing a more accurate picture of resource allocation.

4. Value Proposition Budgeting (VPB): This approach prioritizes spending based on the value it brings to the customer or the organization. Resources are allocated to activities that directly contribute to customer satisfaction or strategic goals.

5. Rolling Budget (or Continuous Budget): This budget is updated regularly (e.g., monthly or quarterly) by adding a new budget period as the current one expires. This keeps the budget current and allows for more agile planning in dynamic environments.