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Incremental Budgeting

Incremental budgeting involves using the previous year's budget as a baseline and making incremental adjustments. While this approach provides stability, it fails to account for changing needs and circumstances. It can also encourage unnecessary spending just to maintain budget levels. Performance and program budgeting systems focus budgets on programs and services, providing information on costs and outputs. Their major disadvantage is the sophisticated cost analysis required, but deriving accurate unit costs is an important part of financial management for human services agencies.

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1K views2 pages

Incremental Budgeting

Incremental budgeting involves using the previous year's budget as a baseline and making incremental adjustments. While this approach provides stability, it fails to account for changing needs and circumstances. It can also encourage unnecessary spending just to maintain budget levels. Performance and program budgeting systems focus budgets on programs and services, providing information on costs and outputs. Their major disadvantage is the sophisticated cost analysis required, but deriving accurate unit costs is an important part of financial management for human services agencies.

Uploaded by

HellenNdegwa
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Incremental Budgeting

Incremental budget
This is a budget prepared using a previous periods budget or actual performance as a basis
with incremental amounts added for the new budget period
The allocation of resources is based upon allocations from the previous period.
This approach is not recommended as it fails to take into account changing circumstances
Moreover it encourages spending up to the budget to ensure a reasonable allocation in the
next period. It leads to a spend it or lose mentality.
Advantages of incremental budgeting
The budget is stable and change is gradual.
Managers can operate their departments on a consistent basis.
The system is relatively simple to operate and easy to understand.
Conflicts should be avoided if departments can be seen to be treated similarly.
Co-ordination between budgets is easier to achieve.
The impact of change can be seen quickly.
Disadvantages of incremental budgeting
Assumes activities and methods of working will continue in the same way.
No incentive for developing new ideas.
No incentives to reduce costs.
Encourages spending up to the budget so that the budget is maintained next year.
The budget may become out of date and no longer relate to the level of activity or type of work
being carried out.
The priority for resources may have changed since the budgets were set originally.
There may be budgetary slack built into the budget, which is never reviewed-managers might
have overestimated their requirements in the past in order to obtain a budget which is easier to
work to, and which will allow them to achieve favourable results.

Performance Budgeting System


The major advantages of performance budgeting systems are that (a) they provide
information on the amount of service provided by a human service program and the
attendant costs including determination of the cost per output or per unit of service
and (b) they raise the level of debate from line-items to programs, program
services, program costs, and program efficiency. The major disadvantage of
performance budgeting systems and program budgeting systems as well is that
human service agencies must employ sophisticated cost analysis techniques in
order to determine the full cost of a program and to derive accurate unit costs.
While describing this aspect of performance budgeting as a major disadvantage, the
point should also be made that being able to fully cost ones programs and derive
accurate unit costs is nevertheless an essential component of the financial
management of human service agencies today.
Program Budget System
The major advantages of program budgeting systems are that (a) they provide
information on the amount of (client).

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