Incremental Budgeting

About

Incremental budgeting is a financial planning approach that involves making adjustments to an existing budget to create a new one. It starts with the previous period's budget and applies incremental changes, such as increases or decreases, based on factors like inflation, market conditions, or organizational growth. This method is straightforward and efficient, as it builds upon what is already known, saving time and effort compared to starting from scratch. Incremental budgeting offers stability and predictability, making it suitable for organizations with stable revenue streams. However, it can also perpetuate inefficiencies if not scrutinized properly. It is widely used in various sectors, including higher education, where over 60% of institutions employ this method. Despite its simplicity and consistency, incremental budgeting may lack flexibility and encourage complacency, as it assumes the previous budget is largely accurate without thorough reevaluation.