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BUDGETTING
INTRODUCTION:Budget is the heart of administrative management. It served as a
powerful tool of co-ordination and negatively an effective device of eliminating
duplicating and wastage. Budgeting, though primarily recognized as a device for
controlling, becomes a major part of the planning process in any organization.
Budget is a formal expression of policies, plans, objectives and goals laid down in
advance by top level authorities of the organization as a whole in a given period of
time. It involves forecast and future performance and also it contributes to control by
anticipating cash needs, planning, necessary financing and establishing the standards
for measuring the current performance. Lastly budgeting presents an opportunity for
evaluation programmes and policies thereby identifying obsolete or unnecessary
activities and giving a call for their discontinuance. It is this sense pre- audit.
MEANING:Literally the word budget means a leather bag or sachet to carry
official paper in. From that association, it came to mean those papers themselves, more
particularly the paper containing the financial proposals for the year.
The word budget derived from the old English word budgettee means a sack or
pouch which the chancellor of the exchequer used to take out his papers for laying
before the parliament, the Government, the financial scheme for the ensuring year.
Now the term budget refers to the financial papers not the sack.
ABOUT BUDGET: Budget is a concrete precise picture of the total operation of an
enterprise in monetary terms. HM Donovan
Budget is an operational plan, for a definite period usually a year.
Budget disciplines and streamlines administration & goes hand
in hand with programme planning.
Budget is a formal expression of polices, plan, objectives and
goals laid down in advance by top level authorities of the
organization as a whole in a given period of time.
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BUDGET------ A TOOL FOR EFFECTIVE ADMINISTRATION:When budget becomes really an effective tool of administrative management, the
executive must have adequate power. The following principles should be followed Executive programme: Budget should go hand in hand with programming
under the direct supervision of chief executive.
Executive responsibility: the chief executive must observe the economy in
the execution of the programme.
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Publicity: The main stages of the budget process, which includes executive
recommendation legislative consideration and action & budget execution,
should be made public.
Clarity: The budget should be understandable to every citizen.
Budget unity: All receipts should be recovered into one general fund for
financing all expenditure.
Detailed speciation: Receipts & appropriation should be specific for to
transfer the items
Prior authorization: Budget execution should stay strictly within the
legislative authorization & should be checked by an auditing agency reporting
to the legislature.
Accuracy: It should be accurate as possible, & there should be no padding of
expenditure estimates or providing for hidden reserves by underestimating
revenue.
PURPOSE OF BUDGETING: Budget supplies the mechanism for translating fiscal objective into
projected monthly spending pattern.
Budget enhances fiscal planning & decision making.
Budget clearly recognizes controllable and uncontrollable cost areas.
Budget offers a useful format for communicating fiscal objectives.
Budget allows feedback of utilization of budget.
Budget helps to identify problem areas and facilities effective solution.
Budget provides means for measuring & recording financial success
with the objectives of the organization.
FEATURES OF BUDGET: It should be flexible.
It should be synthesis of past, present & future.
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5. Budgetary process requires consistent delegation for which fixed duties &
responsibilities are required to be allocated to managers at different level for
framing & executing budget.
6. Budget should include coordinating efforts of various departments establishing
a frame of reference for managerial decisions, & providing a criterion for
evaluating managerial performance.
7. Setting budget targets requires an adequate checks & balance against the
adoption of too high or too low estimates.
8. Budget period must be appropriate to the nature of business or service and to
the type of budget.
9. Budget is prepared under the direction and supervision of the administrator and
financial officer.
10. Budgets are to be prepared and interpreted consistently throughout the
organization in the communication of planning process.
11. Budget necessitates a review of the performance of the previous year and an
evaluation of its adequacy both in quality and quantity.
12. While developing a budget, the provision should be made for its flexibility.
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CLASSIFICATION OF BUDGET:Budget consist mainly three sections: Manpower budget: - includes wages and other benefits provided for regular and
temporary workers.
Capital expenditures: - includes purchase of land, buildings and major equipments
of considerable expenses and long life.
The operating budget: - includes the cost of supplies, minor equipment, repair and
overhead expenses.
Budgets can be classified according to Time, Function, and Flexibility.
ACCORDING TO TIME:
1.
2.
3.
4.
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ACCORDING TO FUNCTION:
1.
2.
3.
4.
5.
6.
7.
8.
Sales Budget
Production Budget
Cost of Production Budget
Purchase Budget
Personnel budget
Capital Expenditure Budget
Cash Budget
Master Budget
ACCORDING TO FLEXIBILITY:
1. Fixed Budget
2. Flexible Budget
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Business policies: - clearly defined business policies serve as basis for budget
preparation.
Statistical information: - In the form of figures, i.e. estimates regarding the
budget terms are essentials for budget.
Top level management: - support is essential to ensure successful instillation of
the budget programme.
Period of budget; - Length of budget period (usually a year) should be
specified.
STEPS IN BUDGETING; Review the goals of the agency or hospital because these are most likely
to receive funding.
Review the objectives of the existing programme and written for proposal
programme to ensure that achievement of these objectives.
Existing programme are revised and proposal programme designed to
maximum goal achievement.
Manpower, capital and operating expenses are computed for each
programme old and new.
Alternative methods are identified for realizing designated objectives and
price of each alternative is determined.
Comparisons are made to determine which alternative is most costeffective.
Budget requests is developed for the preffered programme indicates
alternative method for meeting the same objective, and explain why the
recommended programme is preferred.
Officers and supervisors to present their need for the coming year by a
specified date.
Review the budget appropriation and actual expenditure for the current
year.
Prepare the programme with new budget.
Determine the percentage of salaries of personnel.
Estimate the requirements for coming year from the information supplied
as the expenditure for supplies, equipments and repairs to date.
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Prepare a summary of new needs, both personnel and material with data to
support the request
BUDGET PLAN:It is for the top, management to define the planning premises and
provide procedural details. In the committee after discussion, the members have the
opportunity to plan amongst themselves. A best possible plan combining the talents of
the entire group thus emerges; the approach enhances communication, coordination
and harmony of various operational plans and efforts.
BUDGET CONTENT: The budget consists of a master budget supported by various
functional and supporting budgets. The master budget consists of: Revenue & Expenditure budget.
Balance sheet budget.
Funds flow budget.
The master budget is supported by functional/departmental
budgets. Some of the important functional budgets are: Purchase, personel,
engineering and research. The functional budgets are in two parts. Part one deal
with the departmental costs. Items over which the departmental head has full
control-such as material used, departmental manpower, maintenance expenditure
etc. these are not specifically identified with the department such as salaries of
hospital administration, general maintenance etc.Part two deal with their
performance expressed in terms of numbers to the extent possible.
The initial draft budget contain proposal for additional manpower,
equipment, space and any other resources or changes in rate structure or operating
system. Then these are discussed with the top management, who after deliberating
and considering all aspects either accept, reject or suggest changes to the draft
budget. Once the budget is accepted, the departmental manager is committed to
achieve the targets set.
BUDGET PERIOD:-
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DISADVANTAGES,
LIMITATION
OR
BUDGETARY
SOME BUDGETING ISSUES:1. Budgeting price increases:- Budgets are prepared in advance. There are likely
to be price increases between the time of preparation and the time when the
amount is spent or received. Take this into account when you do your budgeting
by estimating what the costs or value will be when the expenditure is made or
the income received.
If there is likely to be an increase in costs then make sure that you also estimate
for an increase in what you charge in fees for services or in sales of products.
You need to keep your calculations for your budget because some donors may
be willing to provide a supplementary grant if you can show clearly that you
calculations were based on a smaller rate of inflation than actually proved to be
the case.
2. The level of detail needed:- On the one hand, the less detail you give, the more
flexible you are. On the other hand, leaving the budget too open makes it less
useful as a management tool. This does not mean that every single thought and
detail should be included in the budget line items.
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One way to deal with this is to have different versions of the budget for
yourselves and for donors and potential donors. The donor version would be
more flexible and less detailed, and the management version so less.
3. Contingency amounts:- A contingency amount is an amount that you put aside
to deal with unforeseen events. While budgets should be informed guesses, there
is still an element of guessing in them. The future is uncertain and
organisations and projects have to survive in uncertain times. Because of this,
some organisations allow for a contingency line item in their budgets usually
about 10% of the overall annual budget.
However, many donor agencies do not like this and refuse to fund a
contingency line item, possibly because they believe that organisations and
projects should be more accurate in their budgeting. One way to deal with this is
to build contingency amounts into the major line items in your budget, allowing
for an additional 10% over and above your calculations.
4. Budgeting income generating projects:- In overall budget for the project or
organisation, include the costs in the line items reflecting expenditure, and the
income in line items reflecting income. However, for management purposes you
will want to be able to monitor in greater detail than this, in order to establish at
what stage a break-even point is reached. Bookkeeping records should be set up
in such a way as to make it easy for management to access this information.
5. Timeframes:- Organisational budgets (for the whole organisation) are usually
calculated for a year at a time (based on the financial year of the organisation).
This also applies to ongoing departmental budgets. Once you have an annual
budget, it is best to break it down into months, for management purposes. A
monthly breakdown facilitates monitoring (see the sections on budgeting for
monitoring and watching your cash flow).
When you present a budget that covers several years, make sure that this budget
is based on a medium-to long-term plan, and is not simply an uninformed guess.
Budgets for specific, timebound projects may be calculated for the whole life of
the project. For monitoring purposes it is probably best to break this overall
project budget into years (where the project runs over several years). You may
then also decide to break it up into months.
RESPONSIBILITY OF NURSE ADMINISTRATOR IN BUDGET: Participation in planning budget.
Consult & take assistance of his/her subordinates in determining the
needs of the unit for the ensuing year on the basis of information
received.
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