Budgeting is an operational plan, for a definite period usually a year. Expressed in financial terms and based on the expected income and expenditure.
Or
Budgeting is a concrete precise picture of the total operation of an enterprise in monetary terms
2. DEFINITION:
Budgeting is an operational plan, for a definite period
usually a year. Expressed in financial terms andbased
on the expected income andexpenditure.
Or
Budgeting is a concrete precise pictureof the total
operation of an enterprise in monetaryterms.
By: H.M. Donovan
3.
4. PURPOSE OF BUDGETING:
Mechanism for translating fiscal objectivesinto
projected monthly spendingpattern.
Enhances fiscal planning and decisionmaking.
Clearly recognizes controllableand uncontrollablecost
areas.
Offersa useful format forcommunicating fiscal
objectives.
Allows feedback of utilization of budget.
Helps to identify problemareas and facilitates
effective solution.
Provides means for measuring and recording
financial success with objectives of
organization.
5.
6. CHARACTERISTICS OF BUDGETING:
Should be flexible.
Should be synthesisof past, presentand future.
Should be productof jointventureand cooperation of
executive/department head at different level of
management.
Should be in the form of statistical standard laid down
in the specific numericalterms.
Should have supportof top management throughout
the period of its planning andimplementation.
7.
8. IMPORTANCE OF BUDGETING:
Needed forplanning futurecourseof action and
control overall activities in theorganization.
Facilitates coordinating operation ofvarious
departments andsectors.
Helps toweigh valuesand make decisionwhen
necessary.
10. PRINCIPALS OF BUDGETING:
Should provide sound financial managementby
focusing on requirement of theorganization.
Should focuson theobjectivesand policiesof
the organization.
Should ensure the mosteffectiveuseof financial
and non financial resources.
Programme activities should be planned inadvance.
Requires consistentdelegation for framing and
executive budget.
Should include coordinating efforts of various
departmentsestablishing a frame of reference for
managerial decision and evaluate managerial
performance.
11. CLASSIFICATION OF BUDGETING:
INCREMENTAL: Based on estimated changesin
presentoperation plusa percentage increase for
inflation, all of which is added topreviousyear budget.
OPEN ENDED: A financial plan in which each
operating managerpresentsa singlecostestimate for
what is considered optimal activitylevel.
FIXED CEILING BUDGET: The uppermostspending
limit is set by top executive before the unit and
divisional manager develop budget proposal for the
areas of responsibility.
12. FLEXIBLE BUDGET: Several financial plans eachfor
different programmeactivity.
ROLL OVER BUDGET: Forecast programme,
revenuesand expenses fora period greater than ayear,
to accommodate programme larger than annual
budgetcycle.
PERFORMANCE BUDGET: Allocates functionsnot
divisions (direct nursing care, in service education,
nursing research, qualityimprovement).
13. PROGRAM BUDGET: Where costarecomputed fora
total program (group total cost for each service
program). Example- MCH, FP, UIP.
ZERO BASE BUDGETS: Requires nurse manager to
examine, justify each cost of every program both old
and new in every annual budgetpreparation.
SUNSET BUDGET: Designed to “self destruct”within
a prescribed time period to ensure the cessation of
spend in by a predeterminedate.
SALES BUDGET: Is starting in budget program,since
sales are a basic activity which gives shapes to other
activities. Compiled in termsof quantityand value.
14. PRODUCTION BUDGET: Aims at securing the
economical manufacture of production and
maximizing the utilization of productionfacilities.
REVENUE AND EXPENSE BUDGET: Expressed in
financial terms and take the nature of Performa
income statement for future. Shows the item of profits
and loss.
CASH BUDGET: Prepared by way of projectingthe
possible cash receipts and payments over budget
period.
15.
16. BUDGETING PROCESS:
STEP 1: Establishment of operational goalsand
objectives and policies.
STEP 2: Goals must be translated intoquantifiable
management objectives for organizational units.
Departmental goals aremade.
STEP 3: Formal plan for budget preparation and
review including assignment of responsibilitiesand
timetable isprepared.
17. STEP 4: Departmental budget are revised and master
budget isprepared.
STEP5: Financial feasibility of master budget is tested
and final document is approved and distributed to all
parties involved.
STEP 6: Every head of the office required to prepare
budgetestimate in respectof salaries of establishment,
contingent expenditure and others. Example-
Telephone, office expenses, rent of buildingetc.
18. ADVANTAGES OF BUDGETING:
Fixes accountability, assignment of responsibilityand
authority.
Encourages managers to makecareful analysis of
operation.
Weakness is revealed, corrective measurestaken.
Financial matters can be handled in orderlyfashion.
Activities arebalanced.
19. DISADVANTAGES OF BUDGETING:
Converts all aspects of organizational performance in
monetaryvalues. Onlyeasy aspectscan beconsidered
and equally important facts such as organizational
development may beignored.
May becomean end in itself instead of means toend.
Budgetarygoals maysupersedeagency goals.
Skillsand experiences are required forsuccessful
budgetarycontrol.
Time consuming andexpensive.
