Incremental Budgeting

By: EconomyWatch   Date: 30 June 2010

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In case of Incremental Budgeting, the resource allocation is dependent on the money distributed at the time of the last budgetary period.

style="margin-bottom:5">What makes an Incremental Budget preferable?
  • Incremental Budget is steady in nature, characterized by gradual changes
  • The changes introduced in an Incremental Budget are easily visible.
  • With an Incremental Budget, it is easy to synchronize between different other budgetary documents.
  • The total concept of Incremental Budgeting is simple and easily comprehendible, hence operation-friendly in nature.
  • Incremental Budgeting helps the managerial level officials to operate consistently in their individual departments
Incremental Budgeting : Drawbacks
  • Incremental Budgeting encourages a "spend it or lose it" attitude, which makes it difficult to maintain the terms and conditions of the budgetary document.
  • The failure of Incremental Budgeting approach lies in not considering the changing economic circumstances.
  • Previously, the managers were habituated in overestimating their needs, to make an Incremental Budget all the more user-friendly in nature. These yielded favorable outcomes.
  • An Incremental Budget tends to become obsolete quickly, when it does not associate with the existing work type or activity level.
  • The assumption on the part of Incremental Budget that the modes of operation and activities will remain the same all throughout is incorrect.
  • There are no declarations of incentives, as far as the initiation of cost reduction is concerned.
  • Changes in the resource priorities, from that which is originally set, tends to create discontent and confusion.
  • The in-built budgetary slack or relaxation is rarely reviewed.

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