Public Budgeting Methods

Lessons from Serving as a Public Budgeting Leader and Manager in the Public Sector

Public budgeting refers to a field of administration that revolves around the assessment of the available resources and their allocation to the various activities of a firm or organization. I have learned that public budgeting managers must possess relevant financial analysis skills to conduct their roles effectively (Fudge, 2013).

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One of the key roles that I learned about a budgeting manager is that the person must be well equipped with the knowledge to analyze a variety of financial information, which may include revenues, expenditures, and the opportunity costs to determine the feasible projects in which the available resources should be assigned (Lee, Johnson, & Joyce, 2012).

Other than financial analysis for decision-making, the budgeting manager must conduct regular internal audits to ensure that the costs at each stage of project implementation are in line with the budget. It is important to note that the primary objective of budgeting is to track costs, a purpose that can only be achieved by regularly comparing the actual costs with the budgeted ones. Next, I learned that the budgeting manager must reconcile the budgeted cost against the actual expenditure at the end of every financial year or at the completion of each project (Fudge, 2013). Any variances between the budgeted and the actual costs must be explained. Other roles include offering professional advice to other departments of the firm and participating in meetings to discuss the various budgeting issues.

Skills and Knowledge Attained

One of the important skills I have attained from the course is the processes and approaches to preparing a suitable budget for an organization. As it currently stands, a budgeting manager can apply several methods to formulate a budget. One of the approaches that may be used to develop a financial plan is the “lump sum” budgeting. The stated method involves estimating the revenues and expenditures as lump sums without indicating the various units of disbursement (Stillman, 2012).

The other method of budgeting is the line-item approach, which involves breaking down the estimated revenues from each unit and linking such income with the corresponding expenditures. Another approach to budgeting is the balanced budget, which involves estimating the revenues and expenditure of each item to make sure that the income exceeds the disbursement. Next is the performance budgeting method, which involves the assessment of the outcomes of funds allocated to various projects. Others include program budgeting, PPBS budgeting, zero-based budgeting, flexible freeze, and priority-based budgeting, among others.

Can Budgetary Decision-making be Rational

A rational decision can be described as a course of action taken after considering several courses of action. In taking such a decision, the responsible person considers several courses of action. The individual chooses the best one. Some of the factors that a decision-maker considers include the resources required to implement the program, the capital available to the firm, the human assets accessible, technological needs, and the opportunity costs (Henry, 2015).

Based on such analysis, the decision-maker considers the course of action, which maximizes the revenues of the firm with minimal costs. In other words, the rational decision is the one, which yields maximum revenues to the firm. A company can implement such decisions with the available resources. It is important to note that a project may be profitable. However, a company may lack the resources necessary to implement it. This situation underscores the need to consider the available resources to ensure that the chosen course of action is executable.

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Based on the described explanation of rational decisions, it may be concluded that the budgeting process is characterized by level-headedness. As stated previously in this paper, the budgeting process involves assessing the revenues of a company for a specified period and assigning the revenues to the various projects available for investment. The budgeting process is characterized by the assessment of the costs associated with mutually exclusive projects to determine the one that is worth investing (Mikesell, 2013).

The budgeting manager is charged with the responsibility of assessing the costs associated with each project to prepare a report regarding the most feasible project. In addition to assessing the costs, the budgeting manager also assesses the human capital needs of the project to determine whether the company has the necessary labor and technology to successfully implement the project without failure. In the absence of such assessments, the project would fail at different stages of implementation, a situation that may negatively affect the profitability of the business.

The Origin of Line-item Budgetary Structure

The line-item budgeting refers to a method of preparing the budget, which involves grouping individual financial statement items based on the unit price and departments (Joseph, 2017). The method offers a comparison between the figures for the past accounting periods and those of the current or future transactions. This structure was invented as a remedy to the gaps created by the lump-sum budgeting approach in terms of tracking the costs associated with each department or unit.

As stated previously, the lump-sum budgeting method involves estimating the revenues and expenditures as a whole. The method could not clarify the amount that each department contributed to the total revenues or costs. This situation made the accounting of the departmental costs a hectic task to the extent of necessitating the development of a budgeting method that could track the revenues and costs associated with each section.

Scholars’ Primary Criticisms of this Budgetary Structure

Although the line-item budgeting approach has notable strengths over the lump-sum method, it faces several criticisms from scholars. One of the shortfalls of this budgeting method that critics use to discredit the approach is that the budgeted items are not accurate (Joseph, 2017). The reason for such allegations is that this method utilizes historical figures to predict current and future revenues and costs. Basing the future estimates on historical figures is a major shortfall since such numbers may change with fluctuations in the business environment. For example, inflation and currency fluctuations may affect future costs, which may not be reflected in the historical figures.

The other shortfall of the line-item approach is that it may precipitate overspending by the departmental managers (Joseph, 2017). Since the budgets are formulated based on historical figures, the departments are assigned a standardized amount of money each year. If the money assigned to a section is not fully exhausted at the end of a financial year, the departmental managers are motivated to spend it in a rush for fear of budget slash in the subsequent period.

Factors that Account for its Broad Acceptance and Continued Use

However, as much as the line-item budgetary method has several shortfalls, it also has a certain level of strength, which makes it attractive to budget managers. One of the strengths of the method is that it is simple to apply. It can also give accurate figures. The view is grounded on the fact that the method bases its estimates on past figures (Joseph, 2017). A budget manager only needs to scrutinize the trends in revenues and expenditure for a particular item to estimate the costs for the subsequent period. This situation creates simplicity, which makes it attractive to small and medium-sized enterprises.

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References

Fudge, M. (2013). Performance budgeting within state and local governments: The disconnect between public manager efforts and legislative action. PA Times. Web.

Henry, N. (2015). Public administration and public affairs. Abingdon, England: Routledge.

Joseph, C. (2017). Advantages & disadvantages of a line-item budget. Web.

Lee, R., Johnson, R., & Joyce, P. (2012). Public budgeting systems. Burlington, MA: Jones & Bartlett Publishers.

Mikesell, J. (2013). Fiscal administration. Boston, MA: Cengage Learning.

Stillman, R. (2012). Public administration: Concepts and cases (9th ed.). Boston, MA: Cengage Learning.

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