What is the difference between zero based budgeting and activity based budgeting?

Both zero
based budgeting (ZBB) and activity based budgeting (ABB) are different from traditional methods
of budgeting.  In traditional budgeting, a firm typically bases its budget for one fiscal year
on the budget for the past year.  It makes small adjustments based on things like inflation or
changes in revenue.  This is called cost based budgeting.

ZBB goes about the
budgeting process differently.  ZBB, as its name implies, starts from zero.  Instead of giving
each department or each function of the firm a budget based on the past year, it reconsiders all
of the firms activities and functions.  Starting from zero, it analyzes them to see how much of
a budget they really need.  This prevents the firm from just putting money towards certain
activities out of habit or inertia.  It forces each function of the firm to justify its
existence and its budget each year.

ABB is somewhat similar in that it is not
cost based and it requires each function to justify itself each year.  In the ABB process, each
function of the firm is analyzed to see how it fits with the other functions and how it furthers
the firms goals.  This allows the firm to determine which of its functions are most important. 
It allows the firm to budget based on the importance of each function to the firms overall
goals.