The Pros And Cons Of Performance-Based Budgeting

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 budget process is a powerful planning tool for government to make important resource decisions. According the Carney and Schoenfeld‘s article on How to read a Budget, an operating budget is a reflection of government’s financial plans. When a budget is

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).

Capital planning and budgeting is a very vital piece in the Public Budgeting System process. It is an essential implement in the financial management practice and is effective in both public and private organizations. It is the method which consists of the determination and the evaluation of the investments and the possible expenses by an organization. As explicate by Lee, Johnson, & Joyce (2008), capital budgets help in determining how much of each form of investment is needed, and it supports an organization in assessing the available revenue which includes loans is required to finance those investments (p. 475). Capital budgeting is a central part of the universal

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

125). Preparation, approval and implementation are the main steps in the development of public budgets. First the preparation must be begin with the issuance of instructions from the executives, followed by the development of department budgets by the department managers. Once all departmental budgets are completed, they are sent to the central budget office for final review and revision before being sent to the elected officials for approval. Approval is issued by the elected officials after any necessary deliberations take place. Once approved by the elected officials, the budget is considered law and must be followed. The next step is implementation. The budget is constantly implemented as funds are released over the course of the year, reviewed for appropriate use and to verify the budget is in line with projections. Finally the budget must be reviewed at the end of the year by the budget office. A comparison is made between actual figures and budgeted figures. The information gathered in this final step is used in helping to determine future budgets (Bartle, Hildreth, & Marlowe, 2013). There are two major challenges to balancing public budgets. The many actors (e.g. CEO, CFO, department heads, staff, etc.) involved in the development of a public budget and span many departments, and many units in one department making the meeting and negotiating process difficult. Due to the many constraints of policy and the law, the budget process can be long and arduous with four steps stretched into many. These are a few of the many challenges involved in developing a balanced public

Under performance budgeting, government departments and agencies would prepare budgets according to their “major functions, activities and projects” [8] focusing on the impact of the activity or service instead of “things to be acquired” [8]

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

Budgeting is crucial in the well-being of a company especially the financial health status of a company. In fact, no professionally managed firm would fail to budget, since the budget establishes what is authorized, how to plan for purchasing contracts and hiring, and indicates how much financing is needed to support planned activity. It is routine for a company to budget for its expenses. Expense budgets act as a guideline of how much revenue a company would require keeping the activities running. It is used to set the company’s targets for a certain period.

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.

Along with the development of globalization, companies must have an efficient system to keep the competitive advantage. The broad application of new technology gives a basis to the advent of ABB. Nowadays, more and more companies start to use ABB in the budgeting process. Referring to ABB, companies do well in their budgeting period. This shows that ABB itself has many outstanding characters. In this article we will compare it with traditional budget method, so that it could give us a general survey about the characters and benefits ABB has.

The budgeting process is an approach that needs to be carefully selected, managed, applied and controlled. As the CEO of the company my mission is ensure the right business practices are applied to generate better outcomes to our organization. Our current budgeting process is a popular approach used at many local, sate, or national governmental agencies, and nonprofit organization, which consist on spending at the end of the budget cycle the amount that was not used. Managers tend to do it, as they often feel that if they don 't spend such amount during that specific period, next year their budget will be reduced by the same dollar amount. This obviously could make managers to spend money unnecessary and manage resources in ways that can harm the company. The purpose of this memo is explain budget managers the reason why is not convenient to utilize the ‘use it or lose it’ approach as budgeting process due to its harmful effects and at the same time it will provide an alternative solution for our current system.

Budget and budgetary control practices are undeniably indispensable as organizations routinely go about their business activities and operations. These organizations are constantly on the alert on how actual levels of performance agree with planned or budgeted performance. A budget expresses a plan in monetary terms. It is prepared and approved prior to a particular budgeted period and explicitly may show the income, expenditure and the capital to be employed by organizations in achieving their goals and objectives.

Under a Traditional Budgeting approach, incremental budgeting method is relatively simple, it is based on past levels without improvement. Because they do not add analysis and retain the original cost as last period, so it may cause an unnecessary expenditure. The deficiency of incremental budget has been improved to some extent by fixed budget. A fixed budget is a financial plan that remains unchanging, irrespective of the levels of activity (Wouters, Selto, and Hilton, 2012). The Administrator provides fixed targets and allocates them to the suitable organization unit or individual in an independent mode. Fixed Budget is suitable for the business where there are less opportunities of fluctuations in the existing conditions or if the business is not affected by the change in the external elements and the prediction can be achieved easily to present close outcome (Glautier, 2001). It also works as a scale to manage costs. But unexpected changes in the economy, the frequently changing market environment and new competitor entering can result in significant differences between plan and actual, therefore fixed budget is too rigid in the dynamic environment and capital market.

First and foremost, traditional budgeting lack of flexible (Réka, Ştefan & Daniel, n.d.). In most of the time, actual figure may not presents exactly as budget. The actual figure may sometimes higher than budget, due to fluctuation of exchange rate, changes of financial policy or new regulations are being impose. As a result, an inaccurate budgeting is not useful for business management. It is also mentioned by Berg. A (2014), stated that traditional budgeting is not suitable for the contemporary business environment, It has been found to be inefficient to respond new market