Certified Nurse Manager and Leader (CNML) Practice Test

A Zero-Based Budget requires which of the following processes?

1. Using historical budget data to project future costs

2. Evaluating every program for funding each fiscal year

3. Automatically renewing previous year's budget allocations

4. Implementing a fixed percentage cut across the board

The correct answer is: Evaluating every program for funding each fiscal year

The correct answer emphasizes the core principle of a Zero-Based Budget, which is to evaluate every program for funding in each fiscal year. This budgeting approach starts from a "zero base," meaning that no previous budget numbers are considered as defaults. Instead, each expense must be justified for every new period, regardless of whether it was funded in previous years. This process encourages managers to thoroughly analyze the necessity and efficiency of each program and its expenses, leading to better resource allocation aligned with current needs and strategic goals. Using historical budget data to project future costs is more characteristic of traditional budgeting methods, where prior budgets influence future projections. Automatically renewing previous year's budget allocations does not align with the Zero-Based Budgeting approach, which seeks to allocate funds based on current justification rather than past allocations. Implementing a fixed percentage cut across the board applies a uniform reduction without analysis of specific needs or efficiencies, which contradicts the individualized scrutiny required in Zero-Based Budgeting. Thus, the emphasis on evaluating each program for funding is what makes this approach distinctive and effective in resource management.