What is described by 'incremental budgeting'?

Incremental budgeting is effectively characterized by the method that adjusts last year’s budget for the new period. This approach takes the previous year's budget as a base and makes incremental adjustments, either adding or subtracting amounts based on anticipated changes in costs and revenues. This can be influenced by factors such as inflation, changes in demand, or other business conditions.

By building off the prior budget, incremental budgeting emphasizes continuity and stability, allowing organizations to plan while considering historical spending patterns and financial performance. This method is particularly useful in stable environments where previous figures remain relevant.

Other budgeting methods, such as zero-based budgeting, require starting from a "zero base" without considering the previous budgets, and the aim is to create a budget from scratch based on needs and costs rather than simply adjusting previous figures. Flexible budgeting does not rely on historical budgets but adapts based on activity levels or volume changes, while the concept of random determination lacks the systematic approach that characterizes proper budgeting practices.