Incremental budgeting
In this lesson, you'll learn how incremental budgeting works and when it's the right approach to use. Incremental budgeting takes last year's budget, adjusts it for known changes (like new hires), and inflates it for inflation—making it quick and straightforward.
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In this lesson
- 0:00 Introduction to incremental budgeting
- 0:33 When to use incremental budgeting
- 1:43 Benefits of the incremental approach
- 3:24 Criticisms and limitations
- 4:20 How to prepare for exam questions
- 4:54 Worked example: calculating budgeted costs
- 6:12 Common mistake: remembering to inflate all costs
About this lesson
You'll discover when incremental budgeting is most effective: stable businesses with predictable activities and costs, like schools or established organisations with fixed external environments. The lesson covers five key points about incremental budgeting: what it is, two main benefits (speed and simplicity), and two significant drawbacks (it can embed inefficiencies and discourage innovation). Through a worked example, you'll see how to calculate a budgeted cost using the incremental approach, applying inflation rates to both variable and fixed costs, which is essential practice for PM and E2 exam questions on budgeting techniques.
Duration: 7m
Transcript
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