What is "incremental budgeting"?

Incremental budgeting involves adjusting the previous year's budget by applying a percentage increase or decrease. This approach builds upon the foundation of the previous budget, making it relatively straightforward to implement. It simplifies the budgeting process and is often used in organizations where current expenses are expected to continue into the next period, allowing for adjustments based on inflation, changes in activity level, or other anticipated factors.

While organizations using this method can assess the impact of minor tweaks to their financial plans, it does not necessarily encourage innovative thinking about budget allocations or prompt a thorough examination of existing expenditures. It is primarily focused on making gradual changes, rather than overhauling the system entirely or starting anew, which distinguishes it from other budgeting methods.