What is a zero-based budget, and when might it be used in prospect budgeting?

• A. Randomly allocate funds
• B. Start from zero and justify every expense; used to cut waste or reallocate to new strategies
• C. Start from last year's budget and adjust
• D. Budget only for fixed costs

Answer: (B)

Zero-based budgeting means building the budget from scratch, with every expense needing a clear justification and expected impact. This approach helps you see where money is really going and whether each item supports current goals, making it easier to cut waste and reallocate funds to new or higher-priority strategies. In prospect budgeting, this is especially useful when you’re testing new campaigns, channels, or approaches and want to ensure resources are directed to the options with the strongest potential ROI. It contrasts with simply tweaking last year’s numbers, which assumes the prior plan was optimal; it also avoids random allocations or budgeting only fixed costs, which don’t align with strategic priorities. You’d choose zero-based budgeting when priorities have shifted, growth plans are changing, or you need to optimize spend to pursue new prospects and opportunities.