Certified Meeting Professional (CMP) Practice Exam

Which budgeting approach utilizes data from the past three years to establish a budget?

1. Zero based budgeting

2. Incremental budgeting

3. Contingency budgeting

4. Performance-based budgeting

The correct answer is: Incremental budgeting

The correct approach that utilizes data from the past three years to establish a budget is incremental budgeting. This method involves taking the previous year's budget as a base and making adjustments based on past performance, current needs, and future projections. By analyzing data from the past three years, organizations can identify trends, analyze spending patterns, and make informed decisions about increases or decreases in budget allocations for various departments or projects. Incremental budgeting allows for a more straightforward budgeting process as it builds upon existing figures, which can help in planning and forecasting accurately. It often provides a familiar framework for budgeting, as stakeholders can see how past expenditures align with the organization's goals. Other budgeting methods are distinct in their approaches: - Zero-based budgeting requires justifying all expenses from scratch, rather than starting from a previous budget. - Contingency budgeting is focused on setting aside funds for unexpected events or emergencies, rather than using historical data for the budget. - Performance-based budgeting ties funding to the achievement of specific outcomes or performance metrics, rather than primarily relying on previous years' data. Therefore, incremental budgeting is the most appropriate method when historical data is a vital part of the budgeting process.