Incremental Budgeting

An approach to budgeting whereby a manager will increase the previous year’s or period’s actual or planned budget by a certain amount, which might typically be in line with inflation, or similar. It might be used where only minor changes are expected or external factors have had minor impacts on operating costs, which have created a stable business environment.

Different budget lines might be adjusted, being increased or decreased due to inflation, salary change, changes in performance expectations, or a gradual change of emphasis in service provision, allowing for a gradual reduction in expected budget costs, and/or revenue.

This is not an approach that would be undertaken on a regular basis because it does not encourage a full reassessment of needs and desires to grow and develop an organisation and will often stifle innovation and reduce business efficiency over time.