Advantages Of Incremental Budgeting

Decent Essays
ACCA Global 2017 explains that “incremental budgeting is the traditional budgeting method whereby the budget is prepared by taking the current period's budget or actual performance as a base, with incremental amounts then being added for the new budget period”. These additional amounts normally are the adjustments for inflation or estimated growth in the coming period.
The traditional budgeting process has been criticized as a cumbersome process which occupies considerable management time. This process might take up nearly half of the year to prepare for some company. This is because “most of the budgets are very detailed and require the input and back and forth negotiation of many people throughout the organization, which only adds to the
…show more content…
It is fixed and inflexible and can quickly become irrelevant due to the volatile marketing conditions and accelerating speed of business nowadays. Generally in incremental budgeting, top management has the full authority and power to make final decision (Encyclopedia of Management 2009). It means that only top management takes part in preparing the departmental budgets while lower and middle level management’s employees are not allowed to participate in the budgeting process. No matter the instruction is reasonable or not, the lower and middle level management’s employees must strictly follow the instruction given by superior to meet fixed goals set by management. “Budget will stay unchanged and only looks at things as they were back, although there is new competitor enters the market, changing in government policy and market conditions, inflation and so forth” (eFinanceManagement 2017). Because of that, the traditional budgeting process really does not provide opportunity to encourage the employees to become more creative and innovative when finding new ideas (Finweb 2017). This makes them no incentive to participate as the accounting department or top management alone can prepare the
Get Access