Zero-based budgeting works only if you know what things truly cost.

Zero-based budgeting has one of the best origin stories in management. Peter Pyhrr developed it at Texas Instruments in the late 1960s, set it out in a 1970 Harvard Business Review article, and saw it adopted first by the State of Georgia under Jimmy Carter and then, when Carter reached the White House, by the US federal government. The idea is simple and radical: instead of starting from last year and adjusting, you start from zero and make every manager justify every activity before it gets a single euro. Done well, it strips out the accumulated waste that incremental budgeting quietly protects.

Done badly, which is most of the time, it collapses into theatre. Managers are asked to justify their costs from zero, but the only cost information they have is the same historical, averaged, overhead-laden numbers that hid the waste in the first place. So they justify everything, because nothing can be confidently cut, and the exercise produces enormous effort and little change, or worse, it cuts visible muscle because the real fat is invisible. The problem was never the principle of ZBB. It was the absence of a cost model good enough to make the justification real.

How TDABC makes ZBB work

Here is the connection that makes zero-based budgeting deliver. Time-driven activity-based costing gives you the true cost of every activity, built from the capacity it consumes, not from an average. When a manager is asked to justify an activity from zero, they are now justifying a real number, the genuine cost of doing it, against the genuine value it produces. Activities that cost more than they are worth become visible and cuttable; activities that look expensive but are essential can be defended with evidence. In effect, activity-based budgeting and zero-based budgeting converge: both build the budget from what activities truly require, one forward from the plan, the other by justifying from zero. An illustrative example: an organization running ZBB on averaged numbers cut its training budget because it was easy to see, while leaving a costly, low-value approval process untouched because no one could cost it. With a causal model, the priorities reverse. Figures and outcome illustrative; ZBB history per Pyhrr (HBR, 1970).