Budgeting is a fundamental concept of proper financial management, especially for higher education institutions, as it affords a system of planning, direction, coordination, and control for finances. Budgeting is imperative since it helps control expenditure, track expenses, and save money (Barr & McClellan, 2018). Additionally, it helps make better financial decisions, stay out of debt, prepare for emergencies, and focus on long-term financial objectives. There are currently numerous methodological styles of budgeting, and their application depends on goals and objectives that the management wants to achieve. The types of budgeting include all-fund, formula, performance-based, incremental, initiative-based, zero-based, responsibility center, and Planning, Programming, and Budgeting Systems ( Aziz & Shah, 2021) . This paper analysis incremental budgeting model as the most suitable budgeting system for an institution of higher education.
Incremental Budgeting
Incremental budgeting is the most common type of budgeting, and in one form or another, it is pretty used by institutions of high education. It is a conventional budget model where funding levels determine budget allocations and proposals in the previous year. Typically, incremental budgeting entails determining the percentage change in expenses across the board for the coming year's budget over the current year (Ouassini, 2018). Budget cuts or increments are made as a definite percentage of an institution's historical budget. The fixed rates apply consistently across the board through the implementation may differ across the institution. Case in point, staff salaries might be held constant while faculty incomes might increase by, let's say, two percent.
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This budgeting model assumes that amounts spent in the previous years constitute the starting point of an expenditure plan. The budget amounts for subsequent years are often increased by fixed percentages of the amount spent in the previous year (Ouassini, 2018) . For instance, assuming that staff in higher education institution X are paid 1.5 million dollars in the current year and intends to add two staff members in the next year who will be paid 30,000 dollars each before pay rise ( Ouassini, 2018) . The institution also intends to increase staff salaries by 5%. Then, the next year’s staff budget will be [($1.5m +$30k + $30k) x 1.05]. Another assumption informing the incremental budget is that the existing budget adequate and efficient to meet the institution's priority. Also, the system assumes that the opportunities, need, and wants and their corresponding revenues and expenditure are fairly stable from one year to another.
Benefits of Incremental Budgeting
Advocates of incremental budgeting highlight several benefits derived when a higher education institution resolves to use the model for its budgeting process. They point out that since incremental budgeting adopts a consistent approach, the model promotes equal treatment for all departments in the institution, thus preventing departmental conflicts that arise due to budgeting matters. Further, the cause of change in an incremental budget is easy and quick to trace ( Kenno, Sainty & Boles, 2020) . For instance, the increase in staff budget in the institution mentioned earlier can instantly be traced back to the 5% salary increase and the two additional staff since all other parameters in the staff's salaries remained the same. Besides, incremental budgeting reduces internal rivalry between departments within an institution since incremental changes are applied equally from one year to another. This prevents departmental competition for a larger budget allocation.
Historically institutions of higher education are attracted to incremental budgeting model as it is easy to prepare and implement thus provides stability of the budgetary process. As it is easy to prepare, it is easy to understand and can be delegated to junior staff. Furthermore, this model can allow the institution to plan many years into the future due to the model's predictability (Kenno et al., 2020). To add on, incremental budgeting can be scaled across an array of institutional models and different situational contexts.
Drawbacks of Incremental Budgeting
Among the drawbacks of the incremental budgeting model is that the technique is limited in its vision. This is because it is hard to establish areas where expenses are high and how these overheads generate revenue and create value. In this model, accountability for the institution's costs is in the most rudimentary sense. Moreover, this model discourages innovation, the generation of new ideas, and growth (Ouassini, 2018). Given that budgets are based on previous expenditure, little room is availed for the financing of totally new activities, ideas, and innovations.
Critics of the incremental budgeting model observe that the model may promote unnecessary spending in higher education institutions. Departments within the institution tend to spend all their allocation to get a higher share in the subsequent year. Another drawback of this model is that it lacks incentives for comprehensive reviews. The model's stable nature denies incentives to departments that review their budgets to realize savings on the expenditure. This leaves the institute vulnerable to financial wastages and mistakes due to the less than optimally efficient budgeting model (Kenno et al., 2020) . Besides, incremental budgeting may fail to respond to institutional priorities, emerging opportunities, changes, and external factors.
Potential differences in implementing incremental budgeting
Implementation of incremental budgeting in organizations within the same industry results in similar outcomes. For example, the application of the model in colleges, universities, and other educational setup results in similar effects where the simple, stable, and easy to implement budgeting model reduces rivalry among departments. However, there would be substantial differences in outcomes if institutions in different industries implement incremental budgeting. In government institutions, the model is likely to result in significant financial wastages due to a lack of incentives for budget reviews (Ouassini, 2018). Government organizations utilize all their budgetary allocation to obtain an increment in the following years, even where some of the expenses are not justified.
Sustainability and factors influencing effectiveness of incremental budgeting
Arguably, the incremental budgeting model is the most sustainable budgeting system. The model is traditional and has significantly improved over the years. The system is easy to prepare; it is simple, stable, and flexible. It allows an institution to change gradually as it provides for the formulation of a stable budget from one year to the next. While some budgeting models overwhelm financial managers with large budget rises, this is not experienced in incremental budgeting as the current budget is based on the previous year's budget.
Factors that influence the effectiveness of incremental budgeting model in a higher education institute include income structure, nature of expenses, use or non-use of credits and debits, and the institution's technological advancement. Incremental budget is more effective in institutions with multiple and stale revenue sources, unlike single and unstable income sources. This model's effectiveness may also be enhanced by using credit cards as an instrument of convenience reward of points. Such use of credit cards does away with expenditure on interest during the budgeting process (Kenno et al., 2020) . The use of computer programs such as budgeting software, Quicken, and spreadsheet application in drawing the budget increases the effectiveness of incremental budgeting. Computers allow online viewing of transactions, downloading, and printing. They provide a platform for regular monitoring and evaluation of revenues and expenses. Internal institutional factors such as adequate collections and proper accounting of receivables could also enhance the incremental budgeting model's effectiveness.
References
Aziz, H., & Shah, N. (2021). Participatory budgeting: Models and approaches. In Pathways Between Social Science and Computational Social Science (pp. 215-236). Springer, Cham.
Barr, M. J., & McClellan, G. S. (2018). Budgets and financial management in higher education . John Wiley & Sons.
Kenno, S., Lau, M., Sainty, B., & Boles, B. (2020). Budgeting, strategic planning, and institutional diversity in higher education. Studies in Higher Education , 1-15.
Ouassini, I. (2018). An introduction to the concept of Incremental Budgeting and Beyond Budgeting. Available at SSRN 3140059 .
