Advantages And Disadvantages Of Incremental Budgeting

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The procedure of budget formulation is called “incremental budgeting”.
With incremental budgeting, the budget used for the current fiscal year becomes the base for incremental distribution for the next fiscal year. In other words in this system the expenditures are made on basis of resources. If resources fall short the expenditures are cut down. Thus, this form of budgeting agrees to the statement of cutting coat according to cloth. The assumption is that the entire organization and all of its departments will continue to operate at a minimum with the same budget used the previous year. Incremental budgeting works efficiently in organizations where management does not conduct an extensive analysis of the budget on an
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Disadvantages of zero-base budgeting:
a) Bureaucracy -Creating a zero-base budget from the ground up on a continuing basis calls for an enormous amount of analysis, meetings, and reports, all of which requires additional staff to manage the process.
b) Gamesmanship - Some managers may attempt to “cook” their budget reports to concentrate expenditures under the most vital activities, thereby ensuring that their budgets will not be reduced.
c) Intangible justifications- It can be difficult to determine or justify expenditure levels for areas of a business that do not produce “concrete,” tangible results. For example, what is the correct amount of marketing expense, and how much should be invested in research and development activities?
d) Managerial time - The operational review mandated by zero-base budgeting requires a significant amount of management time.
e) Training - Managers require significant training in the zero-base budgeting process, which further increases the time required each
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