One is called a manager because of the responsibilities and duties he/she carries out. It may be supervisory or implementation duties. (Shapiro, J. 2001). Regardless of the amount of resources the managers will require to accomplish set goals, they should be able to produce a document or statement that reflects how the future operations of the organization will be carried out. Future expenditure and income of the organization should also be noted in the budget. (Shapiro, J. 2001).
In general terms, a budget is a financial document whose key purpose is to translate ideas into financial gains. (Curristine, T. 2007). A budget is an estimate made by a business organization, detailing the organization’s financial needs for a given period of time. There are various types of budgets depending on format, style and many other financial characteristics.
The benefits posed by the budget are; Gives specific guidelines and directions to individuals in attaining the set goals. People can refer to the budget incase they have forgotten the set goals. This cuts on cost and expenses. Comparing the actual outcome and that of the budget helps motivate the employees and avoiding impromptu expenditures. (Curristine, T.2007).
The manager has to choose the budget that will attain the set goals in a timely manner. Therefore, the aim of this paper is to explain the two types of budgets (line budget and performance budget) that the town manager of Chapeau de Ste. Marie will present to the president of the town council. (Shapiro, J. 2001).
A line budget seeks to clarify matters concerning an organization’s financial accountability. (Curristine, T. 2007). The budget questions whether funds are being utilized for the intended purposes and seals loopholes for possible misappropriation. It pays immense attention on the past and usually uses the previous year as the reference point. Whereas other types of budgets emphasize a plan based budget, line budget relies on formulas such as “fair share” in order to balance the budget.
Unlike in the case of Performance budgeting where the key players in creating the budget are First line supervisors and bureaucrats, Line budgets are formulated by accountants. Other key players involve an organization’s senior budget managers. All these members of the staff play a vital role in ensuring that the budget eventually balances. (Curristine, T. 2007).
In order to come up with a successful Line budget, it is essential that the concerned has the required expertise in the accounting field. This is mainly because the task of creating and keeping track of a line budget requires considerable skills. (Shapiro, J. 2001).
Advantages of a Line Budget
A line budget has various benefits to a financial organization, which makes it one of the most convenient for gainful business ventures. (Curristine, T. 2007). First and foremost, a Line budget comes with a quality of simplicity whereby it is pertinent when the time involved is limited. Apart from the minimal time involved, it is extremely easy for an organization to make budgets for the various departments. This is mainly facilitated by the availability of records that contains historical expenditures within the organization. Consequently, a consistent financial pattern over the years can make it possible for an organization to make informed guesses concerning the future. (Shapiro, J. 2001).
It is exceptionally easy to justify the outlined plan of expenditure for an organization. The key reason for this is the fact that, a Line budget bases its expenditure on the financial needs of the past years. Therefore, the clear nature of the financial trend reduces the possibility of conflicts among the various departments within an organization. It is impossible for a business organization to suffer losses since it is easy to identify severe abnormalities .
Shortcomings of a Line Budget
A key disadvantage of Line budget is the fact that it may not be essential for future effectiveness. Since the budget bases its details on the past records, it may pose substantial risks when it comes to concerns that have been neglected in the past. (Shapiro, J. 2001).
Illustration of line budget
For a case involving a number of commodities, a Line budget demands that the quantities of goods occupy the X-axis. On the other hand, the Y-axis consists of the past records, present and future estimates. Whereas Chapeau de Ste. Marie is concerned with clearly set programs, the organization’s Line budget may take the following form. (Shapiro, J. 2001).
Chapeau town manager is responsible for the carrying out police and fire protection, road and bridge maintenance, parks and recreation and animal control programs. Performance budget will come in handy since it will entail information on effectiveness and efficiency of agencies and public service providers. (Araral, D. E. 2012). This information is integrated to get results. Proper management of public expenditure as stipulated in the budget will be proved by an improvement in the services provided. There types of performance budgeting, representational performance budgeting where performance information on results or targets is presented. Performance informed budgeting where planned and past results are compared indirectly to the available resources. (Araral, D. E. 2012). This information is mostly used in the process of decision making. Direct performance budgeting is where the results achieved determines the amount of resources allocated. For example, the number of tourists coming to the country in 2013 will determine the number of parks and museums created in 2014. (Shapiro, J. 2001).
Objectives of performance budgeting
The most misused funds all over the world is public funds. During election time for instance, politicians may decide to use public fund in their campaigns hence requiring a change in the budget process. (Araral, D. E. 2012). Performance budgeting therefore will help to control how the funds are used and not be misappropriated, cub financial crisis; more so, reduce public expenditure. The key objectives of performance budgeting are: Expenditure management and efficient and fair location of funds. (Shapiro, J. 2001). The town manager makes sure that each and every county or town has fair share of the public funds depending on the size and number of people. Also, creation and maintenance of resources like roads and parks is in all parts and not some parts given higher priority. Development and improvement of public sectors which involves use of fewer funds in proving ore public services.Improving accountability to politicians and the public by crating systems that can monitor and evaluate corruption incidents.
Practicing performance budgeting
Information in the performance budgeting is of no use if it is not implemented. There are three ways of implementing the changes. (Araral, D. E. 2012).
Top-down verses bottom-up
Development, implementation and monitoring of the reforms are basically carried out by the agencies or the central government in top-down while individual agencies are for bottom-up. (Shapiro, J. 2001).
The “big bang” approach
This is where the earlier reforms are improved or changed during implementation incase unplanned effects happened. (Araral, D. E. 2012). This approach requires more resources which may not be available despite lowering the rate of resistance to change. The approach can be best applied during financial crisis.
How to use performance information in the budget process
The widely used performance budget is the non-financial one. Therefore, incorporation of the performance information in the budget has to be done. (Araral, D. E. 2012). The initial step is to note down the reason for money allocation and whether the allocated amount will produce the wanted results. This means that presentation of the budget has to e flexible for easy integration of any changes. There should also be an organized methodology of connecting results and expenditures. (Araral, D. E. 2012).
Organization: Chapeau de Ste. Marie
Program: Police and Fire Protection
For any town to achieve its set goals, its city manager has to have a budget of the tow cost and expenditure. (Shapiro, J. 2001).Documenting the future results of the town and how the results will be implemented should be included in the budget. (Shapiro, J. 2001). The manager has to choose the best budget for the project implementation so as to cut on the expenditure cost. Performance budgeting not only how the project will be accomplished but also incorporates the information performance. Its moistly used incases of financial crisis and political change. (Shapiro, J. 2001).
A Line budget consists of an organization’s list of items to be obtained during a financial year in vertical columns. Line Budget is extraordinarily popular in financial organization since it has immense advantages. (Shapiro, J. 2001). The simple nature of Line budget makes it easy for an organization such as Chapeau de Ste. Marie to make a correct analysis of revenues and expenditure. This is a pertinent quality considering the fact that availability of resources is massively unpredictable. (Shapiro, J. 2001).
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Curristine, T. (2007). Imroving Public sector Efficiency:Challenges and Opportunities. OECD journal and Budgeting , 7, 1-42.
International, T. (2011). Corruption Perceptions Inex 2011. Retrieved 2 28, 2013, from www.transpparency.org
Shapiro, J. (2001). Budgeting Toolkit. CIVICUS: World Alliance for Citizen Participation , 1-29.