#incremental-budgeting

When a business makes their budget, they typically use either an incremental budget or a zero based budget. Incremental budgets are used by the government (theirs is called a baseline budget) and are not very effective at controlling costs. Zero based budgets, on the other hand, encourage businesses and managers to closely review business plans and forecasts each year and arrive at a budget that meets those goals. If you're interested in learning more about the advantages of zero based budgeting, we recently posted an article on our budgeting blog.

Incremental budgets are often considered poor quality because they use the same mentality as the government budgets. That is, you get to keep what you had last year, which makes many departments spend wastefully just so their budget doesn't get cut. However, if used properly, or used in conjunction with some other sound budgeting principles, this type of budget is easy to deploy and doesn't take a lot of time each month or quarter to update.

Budget Ratios:-1) Capacity usage Ratio = .