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TL; DR
Zero-based budgeting (ZBB) is returning to the CFO agenda in 2026 as AI, cost volatility, and rising board expectations reshape how enterprises allocate capital. Unlike incremental budgeting, ZBB requires every expense to be justified against current business priorities and measurable outcomes. For AI investments, this means evaluating initiatives based on business value rather than model usage, compute consumption, or the number of agents deployed. With the right planning foundation, ZBB helps finance teams identify waste, optimise costs, and redirect capital toward growth, AI, automation, and other strategic priorities.
At the recent Databricks Data + AI Summit 2026, Ali Ghodsi, co-founder and CEO at Databricks opened his keynote with a line that reframed the year for a lot of finance leaders. AI, he argued, does not have an intelligence problem. It has a cost problem. He warned that for most companies; AI spend turns prohibitive within 6 to 12 months if left unchecked.
That warning is not just about AI. Its a sign of an older problem finance has been living for years- the budgets that grow on autopilot, cost-lines that no one retests, and planning cycle that predict last year is a fair start point for the next year. AI just made the consequences arrive faster.
Which is why zero-based budgeting (ZBB) is back on the CFO agenda in 2026 as the mechanism to reset the base, defend every dollar, and fund what actually matters next.
According to Bain, Zero-based budgeting is a planning approach where line-item owners must provide concrete justification for every dollar the organization plans to spend in the coming cycle. The baseline is zero, not last year. Every cost must earn its way back in.
This is fundamentally different from how most enterprises plan today. Traditional incremental budgeting remains dominant at roughly 55-60% of all companies, with ZBB used by 15-20% across all industries, but that gap is closing quickly, especially in large enterprises where ZBB adoption is now estimated at 25-35%.
Consider a retail company operating through physical stores and an e-commerce platform. The business is facing slower sales, rising advertising costs, excess inventory, and increasing operating expenses.
Under traditional budgeting, each function may simply build on the previous year’s budget. Marketing renews campaigns, IT continues software subscriptions, supply chain retains existing inventory plans, and store operations carry forward vendor contracts.
Zero-based budgeting changes this approach. Every function starts from zero and must justify each expense based on current priorities, expected returns, and operational need.
- Marketing may find that brand campaigns deliver limited conversions, while loyalty programmes and personalised email campaigns generate stronger repeat purchases.
- Supply chain teams may identify excess stock and redirect spending towards demand forecasting.
- IT may remove unused licences and protect investment in cybersecurity and e-commerce performance. Store operations may renegotiate contracts and allocate more funding to high-potential locations.
- Finance then compares all proposals based on measurable outcomes, business impact, necessity, and risk. Low-value activities are decreased or removed, while funds are redirected towards customer retention, faster fulfilment, inventory efficiency, and digital growth.
The result is not simply a lower budget. It is a more disciplined allocation of capital, where every expense is connected to a clear business outcome.
Starbucks offers a recent example of this reallocation principle. Under its Back to Starbucks turnaround, managers were asked to justify expenses rather than inherit previous budgets, while savings helped protect investments in areas such as additional barista hours. The example shows that ZBB is not only about reducing costs but releasing capital for strategic priorities.
Starbucks offers a recent example of this reallocation principle. Under its Back to Starbucks turnaround, managers were asked to justify expenses rather than inherit previous budgets, while savings helped protect investments in areas such as additional barista hours. The example shows that ZBB is not only about reducing costs but releasing capital for strategic priorities.
Three forces are pushing ZBB back to the top of the CFO agenda.
First, cost shocks are structural, not cyclical. Financing costs, tariffs, and are all live variables. Zero-Based Budgeting curates' visibility into discretionary and unnecessary spend, allowing targeted cost reductions and resource reallocation.
Second, AI is reshaping both cost structures and how finance teams manage them. Headcount is increasingly detached from output, while traditional ratio-based benchmarks struggle to reflect the economics of AI-enabled operations. At the same time, AI is making ZBB more actionable by reducing the manual effort involved in analysing and managing spend. What was once heavily dependent on spreadsheets and manual analysis can now be supported through activity-based costing, driver-based planning, AI-assisted spend analysis, trade promotion analytics, and ROI dashboards. This allows finance teams to move beyond simply asking what was spent to understanding why it was spent, what drives the cost, and whether it is delivering the expected return.
Third, boards are demanding greater accountability. CFOs are under increasing pressure to demonstrate that spending is aligned with strategic priorities and delivering measurable business value. ZBB provides a structured approach to challenge legacy costs, improve spending discipline, and redirect capital toward brand building, digital transformation, AI capabilities, and other strategic priorities.
AI Spending in 2026: How to Govern, Prioritize, and Mazimize ROI
AI introduces new and variable costs, including model usage, compute, orchestration tools, governance platforms and human review. Since many of these costs did not exist in the previous budget cycle, increasing last year’s allocation by a fixed percentage provides little control.
ZBB requires each AI initiative to begin from zero and justify its funding through expected usage, business value, risk and measurable outcomes.
A recent Polestar Analytics roundtable reinforced this distinction: AI activity does not automatically create business impact. Therefore, AI investments should not be approved based only on tokens consumed, models deployed or agents created. They should be evaluated against outcomes such as faster decisions, lower operating costs, improved customer experience or reduced risk.
This allows finance to classify AI investments into three groups:
- Stop: pilots with low adoption or unclear value
- Optimise: useful applications with excessive model, compute or tooling costs
- Scale: initiatives delivering measurable business outcomes
This is where ZBB adds value. It prevents AI costs from becoming permanent budget lines simply because they already exist and redirects capital towards the initiatives that justify continued investment.
To successfully operationalize ZBB in the budget cycle and on an ongoing basis, follow these five steps:
- Ensure financial transparency: There must be granular visibility into whether costs are variable, fixed, discretionary or nondiscretionary, and the impact on costs if spend changes.
- Identify strategic priorities and KPIs: Cascade strategic priorities against which to evaluate and align costs. Identify KPIs to measure the success of investment.
- Align, evaluate and optimize: Conduct the process of zero-based budgeting as a rightsizing exercise. Plan to repeat it every two to three years.
- Control and monitor the budget: Perform monthly or quarterly reviews to identify budget variances aligned to business priorities and actions to address variances.
- Embrace value-based spending: Operationalize the concepts of ZBB through an ongoing process of active assessment of all spend, regardless of whether or not it has been previously agreed to in the budgeting process.
This where a connected approach comes into the picture. A modern zero based budgeting requires decision-package workflows, driver-based modelling, multi-scenario planning across numerous cost lines and owners and real-time variance tracking.
And when we talk about ZBB transformation, Anaplan is one of the platforms. Its connected architecture lets finance teams model cost drivers at the activity level, re-plan constantly as situations shift, and cascade targets to department owners, without merging it into excel. For CFOs running ZBB program alongside revenue planning, S&OP, workforce planning, that single source of truth thing is what ZBB turns from a project into a capability.
At Polestar Analytics, we have 175+ highly qualified Architects and Planners that comes with a deep domain expertise for an apt Anaplan implementation to assist organizations to run zero based budgeting. From decision-package to driver library built out to exec dashboards, our ZBB practice stands out for CFOs who're looking out for a planning process that scales.
So, Zero based budgeting is not an old school strategy. Its a practice that let finance folks defend every dollar, stay resilient with cost shocks, and redirect capital strategic priorities that conventional budgeting can't do. In 2026, with AI playing a humongous role in cost structuring and margin pressures, the CFOs who begin with zero are the ones who will fund what comes next.
The question is not whether ZBB works. It is whether your planning stack is ready to support it.
- ZBB resets the spending baseline, requiring every expense to justify its value against current business priorities.
- AI is making ZBB more relevant, as new and variable costs demand tighter control and outcome-based investment decisions.
- The goal is smarter capital allocation, not blanket cost cutting, redirecting funds from legacy spend to growth, AI, automation, and strategic priorities.
- Successful ZBB requires continuous planning, with granular cost visibility, driver-based models, scenario planning, and regular variance reviews.
- Connected planning platforms like Anaplan make ZBB scalable, linking cost drivers, decision packages, targets, and ongoing budget monitoring.
No. ZBB is often triggered by margin pressure, but its real value is smarter capital allocation. It helps CFOs separate essential spend from legacy cost, then redirect savings into growth, AI, automation, digital transformation and strategic priorities. The goal is not blanket cost reduction, but making every dollar justify its role.
Start with 2–3 cost categories where spend is high, fragmented, recurring or weakly linked to outcomes. Common starting points include G&A, procurement, sales and marketing, IT, logistics, workforce costs and discretionary operating expenses. A focused rollout creates measurable savings without overwhelming the organisation.
ZBB should not become a full annual rebuild for every function. A practical approach is to run a deep zero-based review for selected departments or cost categories every two to three years, supported by monthly or quarterly variance reviews. This keeps cost discipline active without creating planning fatigue.
ZBB programmes usually fail because of weak ownership, spreadsheet-led execution or treating ZBB as a one-time cost-cutting exercise. Successful programmes need clear decision rights, executive sponsorship, line-item accountability and activity-level cost visibility. Connected planning platforms like Anaplan help make ZBB repeatable, governed and scalable.