What defines incremental budgeting?

Incremental budgeting is characterized by adjusting previous budgets to reflect new circumstances, such as changes in revenue, expenses, or other factors impacting financial planning. This budgeting method typically takes the prior year's budget as a baseline and makes incremental changes to allocate resources for the upcoming budget cycle. The adjustments can include adding or reducing budgets based on anticipated financial conditions or strategic goals.

The essence of this approach lies in its simplicity and efficiency, as it builds upon established data rather than starting from scratch. It allows organizations to recognize trends from previous periods, facilitating a more straightforward process of planning and adjustment. Such a method is particularly useful in stable business environments where significant changes are not frequent, and it simplifies the decision-making process related to financial allocations.

In contrast, other options represent different budgeting methods; for instance, the zero-based budgeting method starts from a clean slate and requires justification for every budget line. A focus solely on reducing costs does not embody the overall approach of incremental budgeting, and the requirement for detailed justification aligns more closely with zero-based budgeting, not incremental budgeting.