Certified Government Financial Manager (CGFM) Practice Exam

Zero-based budgeting is a strategic approach where budgeting begins from a "zero base," meaning that no prior funding levels or allocations are assumed. In this method, every expense must be justified for each new budget period, regardless of whether it was funded previously. This process forces managers and departments to evaluate all functions and activities and assess their needs and costs, ensuring that resources are allocated efficiently and aligned with current priorities.

This approach can lead to more effective use of funds, as it encourages critical examination of all expenses, rather than merely carrying over the prior year’s budget. It also empowers decision-makers to focus on the value and necessity of each expense, fostering a culture of accountability and maximizing resource use.

In contrast, budgeting based on previous years' allocations does not involve reassessment, while allocating funds based on program performance might not require a complete justification of all costs. Lastly, utilizing a rolling budget format focuses on a continuous planning process rather than the zero-based method's requirement for justifying each individual expense anew.