Certified Government Financial Manager (CGFM) Practice Exam

Baseline budgeting is a budgeting approach that typically starts with the previous year's budget and makes adjustments for inflation, expected changes in programs, or other factors. One of the significant disadvantages of this method is that it does not necessitate a comprehensive analysis of existing programs. This can lead to inefficiencies, as it perpetuates funding levels without critically assessing whether the funded programs are effective or still aligned with current priorities. Therefore, resources may continue to flow to programs that are underperforming or no longer relevant, simply because the budget has been established based on prior allocations instead of an evidence-based evaluation of needs or outcomes.

In contrast, thorough analysis in the budgeting process can help identify necessary adjustments and realign resources to more effective programs. The lack of such an analysis can result in fiscal mismanagement and missed opportunities for improvement or reallocation of resources, thereby reinforcing the cycle of funding based on prior allocation without question. This limitation underscores a fundamental shortcoming of baseline budgeting, making it less adaptive to changing circumstances or objectives in governmental financial management.