25-year-old Shanghai PricewaterhouseCoopers employee worked to death?

Incremental budgeting is a conservative form of financial forecasting dating back to the origins of domestic and national budget planning.

It is a fairly simple format to adapt to, but this page will show you how practicing its use will most likely save you money in the short run, but most likely constrain your competitive potential in the medium to long term.

Characteristics

Requires that Current level of activity and budgeted allowances are taken as a base.

In other words prepare the forecast using the previous period?s forecast or actual performance as a basis, then add incremental budget amounts that you expect to change in the new planning period.

Advantages of Incr. Budgtng

Disadvantages of Incr. Budgtng

Conclusion

Incremental budgeting is designed in such a way that allocation of resources is based upon allocations from the previous period.

It encourages managers to ?spend up to the last cent? to ensure a reasonable allocation in the next period.

As a result, modern business practices have dictated that this approach should be discouraged among the recommended methods of financial planning. This is because it fails to take into account changing circumstances geared towards running businesses more efficiently.