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Methods of Budgeting

Methods of Budgeting

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Published by: Shinji on Jan 22, 2011
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Methods of Budgeting
1.Incremental Budgeting
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The process is mainly concerned with the incremental (or marginal) adjustmentsto the current budgeted allowance. In that respect it is rather similar to the NIblock funding: any changes are up or down from the existing funding for particular activities.
2.Zero-based Budgeting
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Zero-based budgeting – unlike the incremental approach – starts from the basisthat no budget lines should be carried forward from one period to the next simplybecause they occurred previously. Instead,
everything 
that is included in thebudget must be considered and justified.
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The process requires specification of minimum levels of service provision, thecurrent level, and an ‘incremental’ level – either between the minimum and thecurrent or an improvement over the current level. Options for delivering at eachlevel can then be evaluated and a justification put forward along with the requestfor resources.
3.Alternative Budgeting Techniquesa.Priority-Based Budgeting
o
It focuses on corporate priorities and allocates growth and savings inbudgets accordingly. It is based on a thorough on-going review of departmental services. According to CIPFA, the review requires astatement of:1.the objectives/purpose of the service;2.targets/standards the service is trying to achieve, and;3.various thresholds at which the service could operate.
o
Based on analysis of these statements, elements of spending by eachbusiness unit could be classed as essential/highly desirable/beneficial andthis information would be presented to decision makers.
b.Decision Conferencing
o
This approach is computer-software aided. It allows participants indecision-making conferences to identify key service areas and the
 
resources committed. Costs and benefits of levels of activity are givenscores and plotted on a graph – these can be varied to allow theimplications for service delivery to be evaluated. While it can be aneffective tool, CIPFA suggests that the focus is largely at service level andis more difficult to apply across services. Also, it is time consuming andexpertise with the associated software is required across organizations.
c.Planning Programming Budgeting
o
This system is primarily associated with corporate management andidentifies alternative policies, the implications of their adoption andprovides for their control. The key difference from traditional approachesis that it relates cost estimates to programs using a cross-cutting methodrather than attributing costs on a traditional departmental basis.
d.
Performance-Based Budgeting
o
The main aim of this approach is to connect performance information withthe allocation and management of resources. Performance-basedbudgets need to contain information on the following elements:1.inputs (measured in monetary terms);2.outputs (units of output);3.efficiency/productivity data (cost per activity);4.effectiveness information (level of goal achievement).
o
Similar to zero-based budgeting, the performance-based approach shouldbegin at a policy level with the organization developing goals and explicitpolicy objectives. Managers then must develop relevant performancemeasures which will track the achievement of these objectives.
e.Participatory Budgeting
o
Participatory budgeting is based on the following principles:
1.citizens’ groups have as much power as possible in thedecision-making process.2.representation must be fair and equitable.3.appropriate training is given to participatory groups. This may require a dedicated council team.
 
4.there is some commonality/theme in the type of budget/grant being allocated e.g.
o
regeneration;
o
neighbourhood development;
o
 project based;
o
so that decision making can be made by reference to some benchmark or standard.
o
the process is linked directly to the council’s budget-making process.
o
it is generally targeted at ‘hard to reach’ groups not otherwise involved indecision-making processes – thus making the biggest gains.
f.
Resource-Restricted Budgeting
o
Resource-restricted budgets are similar to cash-limited budgets. Limits areapplied to particular resources (i.e. staff or equipment) and works rather likethe incremental approach but in reverse.
o
It begins with the supply aspects (for example the number of staff that isavailable to meet future needs) and it is assumed fundamentally that theseare fixed. From this point it works backwards to the required incrementalchange.
4.Budgeting in Uncertain Conditionsa.Rolling Budgets
o
A rolling budget can be defined as “a budget constantly updated byadding a further period, e.g. a month or quarter and removing the earliestperiod.”
b.Contingency Budgeting
o
Contingency budgeting is useful for new organizations where detailedbudgeting is difficult because there is no past experience to draw upon.The absence of reliable detail is compensated for by a contingencybudget to cover as many areas as required.
5.
Adjusting the Budget
a.
Fixed/Flexible Budgeting

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