The Advantages And Disadvantages Of Performance-Based Budgeting In Organization For Performance-Based Budgeting Methods

Budget management analysis is used by mangers as a tool and helps determine that all resources available are being used efficiently. The budgets are determined yearly and are based upon the previous year’s budget and variances. This paper will discuss specific strategies to manage budgets within forecast, compare five to seven expense results with budget expectations, describe possible reasons for variances, give strategies to keep results aligned with expectations, recommend three benchmarking techniques, and identify those that might improve budget accuracy, and justify the choices made.

The budgets process could help to spread resoursces that increase the skill to get best outcome.

This research paper is a brief discussion of budget management analysis. Budgeting is the key to financial management, and is the key to translates an organization goals or plan into money. Budgeting is a rough estimate of how much a company will need to get their work done, and provides the basis for evaluating performance, a source of motivation, coordinating business activities, a tool for management communication and instructions to employees. Without a budget an organization would be like a driver, driving blinded without instructions or any sense of direction, that’s how important a budget is to every organization and individual likewise (Clark, 2005).

Performance Budget: Performance budget is compilation of programs and activities of different departments. It focuses on

Performance indicators are categorized by input, operation, and output factors, and by effectiveness measurement (Pornprasert & Poonikom, 2016). Categorizing performance indicators in such a way ensures that the overall effectiveness of the program is analyzed without forgetting major components. After extensive research on performance indicator development, Pornprasert and Poonikom (2016) created a framework that ensured the selection of performance indicators was appropriate.

Program assessment methodically reviews obtainable evidence on the effectiveness of public programs. The budget expansion incorporates proof of program effectiveness into budget and policy determinations, giving subsidy preference to those that produce a high return on investment of public funds. Implementation oversight provides safeguards allowing programs to be effectively delivered. Outcome monitoring regularly measures and report result data to govern whether programs are attaining desired goals. Targeted

It collects objective information on the outcomes of programs so that wise decisions can be made on program planning and budget allocation (kettle, 2015). Based on this statement, programs that are found to be effective and efficient are continued while those that are ineffective and unproductive are discontinued. Therefore, managers through the help of formal program evaluation can test exactly what they want and get the precise information they needed. As a formal program evaluation has a powerful methodology than the results-based management, better information can be produced from the formal program evaluation. However, this approach requires controlled experiments and lengthy tests which makes it to produce results years after programs were initiated and policy decision were made.

ABSTRACT: This case1 provides an opportunity to study budgets, budget variances, and performance evaluation at several levels. As a purely mechanical problem, the case asks for calculations of various price, efficiency, spending, and volume variances from a set of budgets and actual results. The case is also an interpretive exercise. After the variances have been computed, the next step is to develop plausible conjectures about their likely causes. Finally, it is a case about performance evaluation and responsibility accounting. The company has an incentive plan, based on the budget

Another expense results with budget expectations is capital purchases. Capital purchases are those that cost an organization more than $5,000. Such purchases include radiology equipment, lab equipment, computer systems. Unexpected expenses occur when equipment failure occurs and a need for new or repaired equipment arises or when unexpected volumes of patients require additional capital purchases of equipment to be made. “Working capital management is the role of the manager, in ensuring that there is adequate cash on hand to meet the organization’s needs and minimizing the cost of those resources” (Finkler et al., 2007, p. 360). Variances occur when multiple unexpected costs arise and that reserved cash is expended and needs to assume short-term loans or take away from other departments is necessary. This type of unexpected spending may be categorized as an unfavorable variance. Unfavorable variances are “variances in which more is spent than the budgeted amount” (Finkler et al., 2007, p. 501).

The City of Indianapolis uses a performance budget. The budget reflects resource input and service output for various departments of the city. It creates a connection between the funds provided to the public, and shows the outcomes of the services. This way, it breaks down into departments and helps in evaluating spending from every department in a more in-depth way. The budget format creates clear standards by which to measure success, which is evident in its simplistic nature. The structure makes it easy to understand the key variables that inform each department’s allocation in line with the need to meet the city’s development agenda. It promotes program efficiency and ensures that the program is cost-effective, which ensures efficiency and effectiveness of resource allocation. It ties expenditures to each program in relation to the specific goal developed for the program, which helps immensely in ensuring that resource utilization align with the goal, thereby promoting program accomplishment. This budget makes it easy for the organization to modify resource allocation for various tasks, depending on whether they want to upscale or downscale the program.

These budget reforms aimed to provide holistic information about programs and activities based on measurement of ultimate impact of outcomes through parameters that measured effectiveness and efficiency of operations. Thus the question of optimal utilization of resources and whether the government is allocating them accordingly was to be addressed by this reform.

Budget formulation and use are tools that guide many decision making strategies in business. The measures that are least effective could create an avalanche of catastrophic events that can negatively impact the decision making strategies. It is in the best interest of the pertinent parties to draft an operating budget based on a collective set of information relating to organizational vision and mission. Ineffective measures can be catastrophic based on the foundation for measures used in creating the budget. Among the many issues organizations face that relates to creating an effective operating budget results from poor

Budget is time-consuming, especially if it involves a poorly managed company. The budget only pays attention to the quantitative aspect of business while neglecting the qualitative aspects. It does not consider the quality of services or goods and therefore inconsiderate of customers’ satisfaction. Another disadvantage of a budget is that it is inaccurate. A firm rarely “makes budget.” The hope is that the business activity will be close to the budget, but it could be off considerably and lead to bad hiring, spending and production decisions. This is because budget preparation is based on assumptions and thereby changes in the business environment could lead to unachievable

Budgetary control is part of overall organisation control and is concerned primarily with the control of performance. The use of budgetary control in performance management has of late taken on greater importance especially as a more integrative control mechanism for the organisation. Discuss.

Many businesses expect employees to achieve budget targets as part of their overall performance. While the specifics requirements of each employee differ with the position and nature of the company, it is common for employees to be expected to sell a certain number of items, control costs versus a budgeted amount or reduce waste compared with a benchmark. A potential downfall of using budget information for performance evaluation is that employees may be so concerned with making budget targets that they may do so at the cost of other parts of the business.