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    Performance Based Budgeting: Some Views

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    This document discusses different types of budgets including corporate budgets, performance based budgets, zero based budgets, and incremental budgets. Performance based budgets relate appropriations or expenditure targets to performance targets. They consider the ultimate outcome of a performance, the strategies to attain outcomes, and the activities to achieve outcomes. Zero based budgets require justification for all expenses and dismiss prior year costs. Incremental budgets base resource allocation on prior year funding and encourage gradual changes, but do not consider changing economic conditions.

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    Performance Based Budgeting: Some Views

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    adityatnnls
    60 views4 pages
    This document discusses different types of budgets including corporate budgets, performance based budgets, zero based budgets, and incremental budgets. Performance based budgets relate appropriations or expenditure targets to performance targets. They consider the ultimate outcome of a performance, the strategies to attain outcomes, and the activities to achieve outcomes. Zero based budgets require justification for all expenses and dismiss prior year costs. Incremental budgets base resource allocation on prior year funding and encourage gradual changes, but do not consider changing economic conditions.

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    This document discusses different types of budgets including corporate budgets, performance based budgets, zero based budgets, and incremental budgets. Performance based budgets relate appropriations or expenditure targets to performance targets. They consider the ultimate outcome of a performance, the strategies to attain outcomes, and the activities to achieve outcomes. Zero based budgets require justification for all expenses and dismiss prior year costs. Incremental budgets base resource allocation on prior year funding and encourage gradual changes, but do not consider changing economic conditions.

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    60 views4 pages

    Performance Based Budgeting: Some Views

    Uploaded by

    adityatnnls
    This document discusses different types of budgets including corporate budgets, performance based budgets, zero based budgets, and incremental budgets. Performance based budgets relate appropriations or expenditure targets to performance targets. They consider the ultimate outcome of a performance, the strategies to attain outcomes, and the activities to achieve outcomes. Zero based budgets require justification for all expenses and dismiss prior year costs. Incremental budgets base resource allocation on prior year funding and encourage gradual changes, but do not consider changing economic conditions.

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    Budget is a financial statement that coins down the expected revenue and

    expenditure of a particular fiscal year. There are different types of


    Budgetthat may be discussed in the following section:

    Corporate Budgets: formulate the annual fiscal agendas, plans and programs of a
    commercial organization. It works for putting forward the expected income and
    expenditure figures of a company, for the next financial year.
    Performance Based Budgeting

    Performance Based Budgeting (PBB) is done for the public sector companies.
    Performance Based Budgeting is neither mere information about the
    program-related performances of an enterprise, nor information about
    the decision of resource distribution. Rather, it is a process of assessing
    the overall performances of a company.
    A Performance Based Budget comprises an annual, integrated performance plan, indicating the
    relationship between the levels of program funding and the anticipated outcomes. It refers to a single
    or a set of performance target(s) which must be achieved at a given expenditure level. On an official
    level, Performance Based Budgeting relates the appropriations or expenditure targets with the
    performance targets. The jurisdiction passes on the implementation of Performance Based Budget to
    organizations like:

    Department Reallocation "Crosswalk" Clinics

    Reallocation Workshops

    Accounting and Budgeting Systems Design

    Reallocation Project Design

    Accounting and Budgeting Systems Assessments

    Performance Based Budgeting: Some views


    From the comprehensive definition of Performance Based Budgeting, as provided by Segal and
    Summers, the process considers three different elements prior to the formulation of the budgetary
    document. They are as follows:

    The ultimate outcome of a particular performance

    The strategies, that is, the diverse means of attaining the final result

    The activities performed, in order to achieve the final outcome


    From the above-mentioned elements, one may notice a link existing between the principles of specific
    actions and the final outcomes. The cost-effectiveness of the various actions can also be understood
    and judged, to attain a desirable budget. Hence, as per the definition, Performance Based Budgeting is
    one of the best methods of distributing financial resources, for attaining certain specific objectives.

    Nature and process of Performance Based Budgeting:


    As a fresh and somewhat different budgeting method, Performance Based Budgeting considers all
    conventional methods of scrutinizing and using the budgetary documents as insufficient, timeconsuming and obsolete. Moreover, the Performance Based Budgetary approaches are also far more
    superior and contemporary in nature than the traditional ones. For instance in case of governmental
    projects, the Performance Based Budgeting system facilitates the government to decide the objectives
    of the projects undertaken, determining the type of activities required to accomplish them. All such
    activities or performances have considerable expenses involved with them. Hence the long-term
    projects are disintegrated in the form of annual Performance Based Budgets, which incorporate the
    financial figures.

    Functions of a Performance Based Budget:

    A Performance Based Budget informs the public about the total expended amounts on various
    services, as well as the anticipated benefit which the buyers will derive. It informs the people about
    the possible destinations where their expenses go, along with the cost of the expected benefit.

    A Performance Based Budget permits the policy and decision makers like executives, elected
    officers, budget officers, managers and others to have a transparent view of the trade offs between
    alternative expenditure plans, thus, making more up-to-date, beneficial and effective allocation of
    the financial resources.

    Zero Based Budgeting

    Zero Based Budgeting (ZBB) is a technique of making plans and taking


    decisions, which overturns the working procedure in traditional
    budgeting. In case of Zero Based Budgeting, the function of each and
    every department is analyzed and evaluated in a comprehensive manner,
    and all expenses increase only after such approvals. When discrepancies
    arise, Zero Based Budget requires detailed justification from every
    divisional manager, starting from the lowest levels, called the Zero-base.

    The Zero-base is however, least bothered about the overall increase or


    reduction of the budget.
    Activities of Zero Based Budgeting:

    Zero Based Budgeting is useful for personal finances, as it describes the budgetary practice
    and calculates figures on per unit accumulation of money

    Different financial groups prefer Zero Based Budgets, for assured control on useless
    expenditures. This is precisely why it has retained equal popularity in both public and private
    commercial sectors, ever since its conceptual inception.

    The preparation of Zero Based Budgeting is supported for the sake of Government Budgets.
    Here the expenses tend to become uncontrolled, in trying to maintain parity between the spendings
    of the last and the current years. In other words, the justification of a project on government levels
    is done by this budgeting procedure.

    Zero Based Budgeting offers an overview of the projects with their previous costs, by
    dismissing the earlier ones.

    What is so beneficial about Zero Based Budgeting:

    Enhances coordination and communication within the enterprise, for positive effects and better
    output levels

    Provision for more schemes and responsibilities, to further encourage the staffs

    Compels the spending centers to understand their missions and their inter-relationships, for
    achieving overall goals

    Acts as a driving force for managers to search for cost-effective measure to develop the
    operations further

    Quick identifications and immediate eliminations of unused and outdated operations

    Recognizing opportunities for financial outsourcings

    Used extensively in the service sectors and departments for easy identification of the outputs

    Helps in the detection of inflationary budgets

    The financial resources are efficiently allocated, on the basis of requirements

    Zero Based Budgets: Criticisms

    No proper training of officials on the managerial levels.

    In the micro-management levels, Zero Based Budgeting spends the least amount of time on
    issues that really affects the development and progress of a company, and meddles with trivial
    issues, which may or may not have any effect on the operations of the company.

    Forceful justification of all expenditure details is demanded

    Incremental Budgeting

    In case of Incremental Budgeting, the resource allocation is dependent on the


    money distributed at the time of the last budgetary period.

    Incremental Budget is steady in nature, characterized by gradual changes

    The changes introduced in an Incremental Budget are easily visible.

    With an Incremental Budget, it is easy to synchronize between different other budgetary


    documents.

    The total concept of Incremental Budgeting is simple and easily comprehendible, hence
    operation-friendly in nature.

    Incremental Budgeting helps the managerial level officials to operate consistently in their
    individual departments

    Incremental Budgeting : Drawbacks

    Incremental Budgeting encourages a "spend it or lose it" attitude, which makes it difficult to
    maintain the terms and conditions of the budgetary document.

    The failure of Incremental Budgeting approach lies in not considering the changing economic
    circumstances.

    Previously, the managers were habituated in overestimating their needs, to make an


    Incremental Budget all the more user-friendly in nature. These yielded favorable outcomes.

    An Incremental Budget tends to become obsolete quickly, when it does not associate with the
    existing work type or activity level.

    The assumption on the part of Incremental Budget that the modes of operation and activities
    will remain the same all throughout is incorrect.

    There are no declarations of incentives, as far as the initiation of cost reduction is concerned.

    Changes in the resource priorities, from that which is originally set, tends to create discontent
    and confusion.

    The in-built budgetary slack or relaxation is rarely reviewed.

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