Budgeting: Incremental Budget

There are a few traditional methods of preparing budgets.

One of it is the using of Incremental Budget.

This article discusses what are an Incremental Budget and the pros and cons.

Incremental budget


  • a budget prepared using a previous period’s budget or actual performance as a basis with incremental amounts added for the new budget period


  • allocation of resources is based upon allocations from the previous period.

Advantages of incremental budgeting

  • Relatively simple to use and easy to understand
  • The budget is stable and change is gradual.
  • Managers can operate their departments on a consistent basis.
  • Conflicts should be avoided if departments can be seen to be treated similarly.
  • Co-ordination between budgets is easier to achieve.
  • The impact of change can be seen quickly.

Disadvantages Of incremental Budgeting

  • Unlike zero based budget, incremental budgeting assume that the activities and methods of working will continue in the same way hence it fails to take into account changing circumstances.
  • As it is merely a marking up the previous year budget, it’s too simple a method where it does not provide incentive for employees to develop new ideas/ to innovate.
  • As it encourages spending up to the budget so that the budget is maintained next year. With this spend it or lose it mentality, cost cannot be reduced.
  • The budget may become out of date and no longer relate to the level of activity or type of work being carried out.
  • The priority for resources may have changed since the budgets were set originally.
  • There may be budgetary slack built into the budget, which is never reviewed-managers might have overestimated their requirements in the past in order to obtain a budget which is easier to work to, and which will allow them to achieve favourable results.


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