Incremental Budgeting

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

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.