1.

3 Cost budgeting
1.3.1 Definition
There is various method to be implemented in cost budgeting, one of it is incremental
budgeting.[1] Incremental budgeting is a form of budgeting process based on the concept that
a brand-new budget can ne prepare with minimal amend to produce current year’s budget. In
other words, using addition or subtraction of certain percentage from the figure of last year.
There is no fixed formula to determine the final amount as the amount changed can be based
on assumption as well. Its implementation is fairly simple and does not require a lot of
calculation, saving time and cost. [2]

1.3.2 Environment

Incremental budgeting is good for securing extra fund for other plans to be amend into the
building. For examples, the original design of the building does not have green technology
and is ineffective in protecting the environment. [3] Therefore, those extra fund can allow
installation of renewable energy source like solar panel or smart appliances that turn off
electricity when not in use. Utilization of those extra fund will not be put to waste; it can
provide a cost estimation as well for future references for other building.

1.3.3 Economy

Although incremental budgeting is a simple approach, but it still consists of a lot of

unnecessary spending. This is because not every stage in construction utilizes the same
amount of fund. As such, the chances to over budget or under budget will increase the risk of
payment while the construction project is ongoing. If developer fails to predict the budget and
is short of fund, the building will be suspended of any works. This happened many times in
recent years as the arrival of pandemic is unpredicted, dropping the GDP since most of the
project has stopped progressing.

1.3.4 Social

Budgeting usually involves many departments which rises many conflicts when the amount is
not distributed evenly. With incremental budgeting, fairness is emphasized as all department
is treated similarly. This also eliminates rivalry which brings down the overall productivity of
the company. Same for construction, giving a budget which does not have a specific
allocation of sum, developers can adjust the fund freely without restriction. Although this
bares some risk and uncertain suspect among parties or departments but given that
equilibrium brings peace.

Citation
1. https://corporatefinanceinstitute.com/resources/knowledge/accounting/types-of-budgets-
budgeting-methods/
2. https://www.cfajournal.org/incremental-budgeting/
3. https://designbuild.nridigital.com/design_build_review_april19/
the_rise_of_green_technology_in_construction
4.