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Incremental budgeting

Incremental budgeting involves taking the previous years’ budget and making adjustments. Watch this video to learn more.

Incremental budgeting involves taking the previous years’ budget (or actual closing position for the previous year) and making adjustments with a ‘copy and paste’ method. Incremental budgeting is best suited to businesses in stable environments that aren’t growing rapidly or experiencing vast periods of change – for example, a large supermarket chain.

Advantages of incremental budgeting

  • Easy
  • Cheap
  • No complex forecasting
  • No significant management review time needed

Disadvantages of incremental budgeting

  • Doesn’t allow business to adapt to changes around them, for example technological or social changes.
  • Any inefficiencies will also be carried forward, for example having too many members of staff.
  • Not very sophisticated.
  • Encourages budget holders to overspend in order to use their full allocation and get that same amount next year.
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Introduction to Business Budgeting

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