Budgets

1. budget: plans expressed in numbers (usually dollars).

A budget is a plan. Budgeting should identify priorities for program efforts.
Every action involves a resource cost.  Budgeting techniques vary among 
organizations.  Nevertheless, there are certain aspects that should be a 
part of all budgets.  For example, every business plan should contain a 
marketing plan. 

2. revenue and expense budgets: traditional measure of money entering/leaving 
                                   organization

e.g., classic accounting approach
 
Budgeting should start by identifying all projected income (revenue) 
and expenses.   Budgeting should identify all expense and revenure 
categories in an organization. 

3. time, space, material, and product budgets: non-$ budgets

Resources may include personnel, facilities, equipment, and time, 
as well as money.  Therefore, non-$ budgets may be more convenient 
to measure.
e.g., # of inspections, labor hours, machine hours.

 
4. capital expenditure budgets:

focuses on large expenditures that tie up resources
(tied in with long-range planning).
e.g., equipment, buildings.

5. cash budgeting:

not all resources are in the form of cash
(buildings, equipment, etc.)
e.g., money to pay the bills!

6. alternative budgets:

Budgets should be flexible. One way to achieve this is through 
alternative budgets: these include several budgets, but are limited 
to a few alternatives.
e.g., plan A, plan B, plan C

7. variable budgets:

expressing budget as a function of key independent variables 
(infinite # of alternatives)
e.g., depending on sales or total appropriations

8.  Budget fallout:

Funds that unexpectedly become available.   Even during lean years, 
it is absolutely necessary to plan for budget fallout. 

 
Fundamental Budget Approaches
1. line item budgeting

traditional and very detailed budgeting
measures: expenditures and revenues related to specific commodities
e.g., salaries, equipment, office space
answers: how will we spend the money? (input)

2. program budgeting:

budgeting related to public goals
measures: cost center: a collection of different costs associated with 
a single function
e.g., inspections (includes costs of salary, letters, forms, equipment, etc.)
Cost centers can help identify requirements for various program functions.
The designation of cost centers can influence decisions about allocation. 
answers: what will be achieved by the program?
(effectiveness, output)

3. performance budgeting:

budgeting related to work loads (e.g., # inspections)
measures: unit costs = cost / performance (measures unit costs within 
cost centers)
e.g., costs per inspection
answers: How efficient is the program?
(efficiency, output)

4. zero based budgeting:

completely recalculated budgets for each cycle
measures: typically a ranking of alternative budgets
e.g., work loads and cost centers (as above)
answers: exactly what is to be done?
(efficiency or effectiveness, output)

5. PPBS: budgeting

planning/programming/budgeting system that resembles cost benefit analysis
measures: benefits and costs (usually multi-year projections)
e.g., benefits of reduced illness
answers: what is to be achieved?
(effectiveness, outcome)

 
 
Typical Budgeting Cycle 
A. Preparation phase 

1. needs assessment and feasibility study
2. program planning
3. estimate costs
4. develop budget
5. set priorities
immediate resources (must have)
distant resources (would like to have)
proximate resources (should have)
6. trim the budget
7. documentation (the written proposal)
8. funds procurement
submit budget request
negotiate with funder
rebudget and resubmit
award and acceptance

B. Execution phase

9. designate cost and responsibility centers
10. internal funds allocation and rebudgeting
11. establish restricted accounts
12. record financial transactions (accounting)
13. operations monitoring and reporting

C. Assessment phase

14. end of year (EOY) financial statements
15. financial audit
16. performance audit
17. cost analysis

D. Recycle

18. program replanning
19. continuation budgeting

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