Professional in Human Resources (PHR) Practice Exam

Zero-based budgeting is a budgeting method that requires every expense to be justified for each new period, starting from a "zero base." Unlike other budgeting methods that often use the previous period's figures as a foundation, zero-based budgeting disregards this historical data. Each budget cycle begins from scratch, meaning that every function within an organization is analyzed for its needs and costs, regardless of whether it has been funded in the past. This approach encourages a thorough evaluation of spending and helps to identify areas where resources can be reallocated based on current priorities rather than historical allocations.

In contrast, incremental budgeting builds on previous budgets, making minor adjustments based on past figures. Flexible budgeting adjusts the budget based on actual activity levels and revenues, while rolling budgeting continuously updates budgets based on recent data.