Which budget method uses the previous year's budget as a base?

Incremental budgeting utilizes the previous year's budget as a foundation for the current budget cycle. This method involves making adjustments to the last year's budget, typically involving increases or decreases based on needs, anticipated changes, or inflation. By using the previous year's figures as a starting point, incremental budgeting simplifies the budgeting process and provides a baseline for decision-makers. It also encourages consistency and stability in budgeting, allowing organizations to forecast future budgets based on historical data.

In contrast, zero-based budgeting requires all expenses to be justified for each new period, starting from a "zero base" rather than from the previous year's budget. Performance budgeting ties funding to the outcomes and effectiveness of programs, focusing on goals and results rather than on historical expenditures. Variance budgeting, on the other hand, involves comparing budgeted figures with actual spending in order to analyze performance rather than building on prior budgets. Therefore, the distinctive characteristic of incremental budgeting is its reliance on past budgets as a base, making it a common approach in many organizations.