Incremental budgeting is the process whereby this year’s budget is set by reference to last year’s actual results after adjustments for inflation and other incremental factors.
The following are advantages of incremental budgeting:
- It is quick to do and relatively simple process;
- the information for making an incremental budget is readily available, so a very limited quantitative analysis is needed;
- it is appropriate in some circumstances for example, in a stable business, the amount of stationery spent on one year is unlikely to be significant in the next year, so taking the actual amount spent on year one and adding a little for inflation should be a reasonable target for the amount required to be spent in the next year.