CIMA Managing Performance (E2) Practice Exam

Which budgeting characteristic is associated with potential demotivation among managers?

Participative budgeting improves acceptance. Incremental budgeting. Stable, unchanging budgets. Zero-based budgeting.

Correct Answer:

Incremental budgeting.

Explanation:

Incremental budgeting keeps the new budget close to last year’s figures, with only small adjustments. Because the base is already set, targets often feel safe and predictable, so managers may not need to push hard to cut costs or improve processes. This lack of stretch can dampen motivation and encourage accepting the status quo or budgetary slack, since simply achieving the small change feels sufficient. In contrast, participative budgeting tends to boost motivation by involving managers in target setting, while zero-based budgeting requires justification of all costs and can drive more effort to improve efficiency.

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