BUDGETING AND BUDGETARY CONTROL

BUDGET
A BUDGET IS A FINANCIAL OR QUANTITATIVE

PLAN
A FINANCIAL OR QUANTITATIVE STATEMENT,

PREPARED PRIOR TO A DEFINED PERIOD OF TIME,

OF THE POLICY TO BE PURSUED DURING THE PERIOD, FOR THE PURPOSE OF ATTAINING A GIVEN OBJECTIVE. IT MAY INCLUDE INCOME, EXPENDITURE OR EMPLOYMENT OF CAPITAL

FEATURES OF A BUDGET
PLANNING COMPONENT SERVES AS A BASE FOR

PERFORMANCE EVALUATION AND CONTROL

PREPARED IN MONETARY AND QUANTITATIVE

TERMS OR BOTH
PURPOSE IS TO IMPLEMENT THE POLICIES AND ATTAIN GIVEN OBJECTIVES

FUNCTIONAL BUDGETS
SALES BUDGET PRODUCTION & PRODUCTION COST BUDGET RAW MATERIALS BUDGET PURCHASE BUDGET LABOUR BUDGET PRODUCTION OVERHEADS BUDGET SELLING AND DISTRIBUTION OVERHEADS BUDGET ADMINISTRATION OVERHEAD BUDGET CAPITAL EXPENDITURE BUDGET CASH BUDGET MASTER BUDGET

BUDGETARY CONTROL
BUDGETARY CONTROL IS THE ESTABLISHMENT

OF BUDGET RELATED RESPONSIBILITIES OF THE

EXECUTIVES OF A POLICY AND THE CONTINUOUS COMPARISON BUDGETED OF ACTUAL PROCESS TO WITH

RESULTS,

EITHER

CONTROL

INDIVIDUAL ACTION OR OBJECTIVE OF THE

POLICY OR TO PROVIDE A BASIS FOR REVISION

OBJECTIVES
PLANNING

COORDINATION
COMMUNICATION

PERFORMANCE EVALUATION

HOW TO MAKE BUDGETING EFFECTIVE

SUPPORT OF TOP MANAGEMENT PARTICIPATION BY RESPONSIBLE EXECUTIVES REASONABLE GOALS

CLEARLY DEFINED RESPONSIBILITY CENTRES

CONTINUOUS EDUCATION ADEQUATE ACCOUNTING SYSTEM CONSTANT VIGILANCE FOCUS ON EFFICIENCY ETC.

PRE-REQUISITES FOR A BUDGETING SYSTEM

BUDGET PERIOD CREATION OF BUDGET CENTRES PREPARATION OF A BUDGET MANUAL ESTABLISHMENT OF BUDGET COMMITTEE

INTRODUCTION OF ADEQUATE ACCOUNTING RECORDS

DETERMINATION OF KEY FACTOR SALES LABOUR MATERIAL PLANT

IMPROVED BUDGETING TRENDS

ZERO BASED BUDGETING
PROGRAM-PLANNING-BUDGETING (PPBS) PERFORMANCE BUDGETING SYSTEM

ZERO BASE BUDGETING

TRADITIONAL BUDGETING APPROACH ASSUMES
ALL ACTIVITIES MAKING UP LAST YEARS SPENDING LEVEL WERE ESSENTIAL TO ACHIEVE THE ONGOING OBJECTIVES AND ARE MORE URGENT THAN NEWLY REQUESTED PROGRAMS AND HENCE MUST CONTINUE;

A RE NOW BEING PERFORMED IN THE BEST AND MOST COSTEFFECTIVE MANNER AND WILL CONTINUE TO BE COST-EFFECTIVE IN THE COMING YEAR, THUS BUDGET REQUIRES INCREASES FOR INFLATION

ZERO BASE BUDGETING

METHOD OF BUDGETING WHEREBY ALL

ACTIVITIES ARE RE-EVALUATED EACH TIME THE

BUDGET IS FORMULATED AND EVERY ITEM OF EXPENDITURE IS FULLY JUSTIFIED INVOLVES, STARTING FROM A SCRATCH OR

ZERO BASE

ZERO BASE BUDGETING PROCESS

IDENTIFICATION OF 'DECISION UNITS'
PREPARATION OF 'DECISION PACKAGES' RANKING/PRIORITISATION OF DECISION PACKAGES WITHIN A DECISION UNIT. RANKING /PRIORITIZATION OF DECISION PACKAGES OF VARIOUS DECISION UNITS. ALLOCATION OF RESOURCES FOR THE CHOSEN DECISION PACKAGES UNDER EACH DECISION UNIT. MONITORING AND EVALUATION.

ZERO BASE BUDGETING ADVANTAGES

RESULTS IN EFFICIENT ALLOCATION OF RESOURCES AS IT IS BASED ON NEEDS AND BENEFITS DRIVES MANAGERS TO FIND OUT COST EFFECTIVE

WAYS TO IMPROVE OPERATIONS

INCREASES STAFF MOTIVATION BY PROVIDING GREATER

INITIATIVE AND RESPONSIBILITY IN DECISION-MAKING INCREASES COMMUNICATION AND COORDINATION

WITHIN THE ORGANISATION IDENTIFIES AND ELIMINATES WASTAGE AND OBSOLETE

OPERATIONS.

ZERO BASE BUDGETING DISADVANTAGES

DIFFICULT TO DEFINE DECISION UNITS AND DECISION PACKAGES, AS IT IS VERY TIME-CONSUMING AND EXHAUSTIVE. FORCED TO JUSTIFY EVERY DETAIL RELATED TO EXPENDITURE. THE R&D DEPARTMENT IS THREATENED WHEREAS THE PRODUCTION DEPARTMENT BENEFITS. ZBB SHOULD BE CLEARLY UNDERSTOOD BY MANAGERS AT VARIOUS LEVELS OTHERWISE THEY CANNOT BE SUCCESSFULLY IMPLEMENTED. DIFFICULT TO ADMINISTER AND COMMUNICATE THE BUDGETING BECAUSE MORE MANAGERS ARE INVOLVED IN THE PROCESS.

PROGRAM-PLANNING-BUDGET SYSTEM (PPBS)

PLANNING-ORIENTED PROGRAM BUDGET. APPROACH TO DEVELOPING A

A PROGRAM BUDGET IS A BUDGET IN WHICH EXPENDITURES ARE BASED PRIMARILY ON PROGRAMS OF WORK THE MAJOR CONTRIBUTION OF PPBS LIES IN THE PLANNING PROCESS, I.E., THE PROCESS OF MAKING PROGRAM POLICY DECISIONS THAT LEAD TO A SPECIFIC BUDGET AND SPECIFIC MULTI-YEAR PLANS. FIRST IMPLEMENTED BY THE US DEPARTMENT OF DEFENSE IN 1962

PROGRAM-PLANNING-BUDGET SYSTEM (PPBS)

UNDERLYING BELIEF THAT EFFICIENCIES AND IMPROVEMENTS IN GOVERNMENT OPERATIONS COULD BE ACHIEVED THROUGH A COMMON APPROACH FOR: * ESTABLISHING LONG-RANGE PLANNING OBJECTIVES

* ANALYZING THE COSTS AND BENEFITS OF

ALTERNATIVE PROGRAMS THAT WOULD MEET THOSE OBJECTIVES

* TRANSLATING PROGRAMS INTO BUDGET AND

LEGISLATIVE PROPOSALS AND LONG-TERM PROJECTIONS.

PROGRAM-PLANNING-BUDGET SYSTEM (PPBS)

PPBS PRECEDED IN TWO SIGNIFICANT WAYS: EMPHASIZED OBJECTIVES - PPBS FOCUSED LESS ON THE EXISTING BASE AND ANNUAL INCREMENTAL IMPROVEMENTS

, AND MORE ON THE OBJECTIVES AND LONG-TERM

ALTERNATIVE MEANS FOR ACHIEVING THEM

LINKED PLANNING AND BUDGETING - BY MEANS OF

PROGRAMMING, PPBS INSTILLED A PROCESS THAT ESSENTIALLY DEFINES A PROCEDURE FOR DISTRIBUTING

AVAILABLE RESOURCES EQUITABLY AMONG THE MANY

COMPETING OR POSSIBLE PROGRAMS.

ANY QUESTION ??