Which budgeting method requires negotiation for budgets each year?

The budgeting method that requires negotiation for budgets each year is Zero Budgeting. In this approach, every budget period begins from a "zero base," meaning that all expenses must be justified for each new period, rather than basing the budget on previous years' figures. This requires managers to critically evaluate their needs and align them with organizational goals, justifying each expense as if it were a new request.

As a result, there is a strong emphasis on negotiation and discussion during the budgeting process, as departments and managers must advocate for their budget requests based on current needs and expected outcomes, rather than simply receiving incremental increases or maintaining existing budgets. This method encourages a thorough examination of costs and drives efficiency while also fostering accountability among departments.

In contrast, Incremental Budgeting typically involves making small adjustments to the previous year's budget, Flex Budgeting adjusts based on activity levels, and Activity-Based Budgeting allocates costs based on activities that drive expenses without the same level of negotiation involved in Zero Budgeting.