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VARIOUS BUDGETING MODELS - Coggle Diagram
VARIOUS BUDGETING MODELS
GOOD BUDGETING
It provide information and focuses on outcomes.
Provides the right climate for good decisions, excellence and controls all activities.
GOOD BUDGETING CHARACTERISTICS
Managers' involvement
Clear definition of long-term goals
Rational allocation of resources
Continuous improvement
Supported by accounting information system
DEVELOPMENT OF BUDGET SYSTEM IN MALAYSIA
TRADISIONAL BUDGETING SYSTEM (TBS)
Focused on items/objects expenditure.
Concerned with the financial input than the output of its activities.
Not concerned with the attainments of policy objectives and their relationship to costs.
Less concerned with the performance.
CHARACTERISTICS
simple budgeting system and can be easily understood by the users.
information presented is easily be incorporated into the accounting system.
budgeted and actual revenues and the expenditure ensures detailed comparisons to be made.
ADVANTAGES
data provided is useful primarily for short-term planning only.
information presented does not state clearly the purpose of current and future utilization of resources.
long run goals of the organization ma be jeopardized.
providing a framework of financial information that complies with legal requirements rather than providing useful management-type information.
PROGRAMS & PERFORMANCE BASED BUDGETING SYSTEM (PPBS)
used by majority of the developing nations.
helps management make better decisions on the allocation of resources to achieve government objectives through the selection of the best feasible alternatives.
increasing complexity of modern life, increase in demands for government services, shortage of funds to meet the demand and the need to determine priorities, design programs and control budgets
FUNDAMENTALS
Identifying objectives
Programs planning & structuring
Developing performance indicator
Performance evaluation
CHARACTERISTICS
It focuses on overall agency objectives.
Emphasizes programs/activities to meet the objectives.
Emphasizes objectives of spending.
The main thrust is to evaluate performance and to ensure various agency/departments attain the objectives.
ADVANTAGES
Provides better information on management effectiveness
Systematic & continuous performance evaluation furnish information for future planning & decision making.
Programs planning & structuring facilitate prioritization
Modified Budgeting System (MBS)
Based on fundamental management principles of Letting managers manage
Aim to improve resources allocation by bringing more efficient management of government programs through improved accountability
OBJECTIVES
To improve programs performance in the utilization of funds (improve policy)
To improve on the distribution and allotment of funds according to priorities set
To upgrade on accountability especially amongst lower officers.
To improve public sector accountability through Program Agreements and Exemption Reports (to avoid fraudulent activities)
CHARACTERISTICS
Expenditure Target
Programs Agreement & Exceptions Reports
Cycle of Program Evaluations
More generalized approach to expenditure control
EXPENDITURE TARGETS
Existing Policy
Refers to programs that have already been approved by Law, the Cabinet, the Ministry, the Treasury or any other authority and are still being implemented in the current year and would continue to be implemented in the following year.
Expenditure Target / Limit is set annually for the existing policy on the assumption
New Policy
-refers to programmes planned to be implemented in the next budget period. They are also extension or enlargement of existing policy.
One-Off
refers to the unavoidable expenditure, non-annual or non-recurrent expenditure. It is considered as one-time purchase
Zero-Based Budgeting System (ZBB)
Starts from the premise that no costs or activities should be factored into the plans for the coming budget period, just because they figured in the costs or activities for the current or previous periods
Burden of proof on the manager and demands justification for the entire budget in detail
FORMATS
Development of decision packages for each agency.
Requires each decision package to be evaluated by top management to determine whether it is justified for further funding.
ADVANTAGES
Allows management an opportunity to review operations in depth and make recommendations for changes.
Helps managers identify redundancies and duplications among different departments.
Specific priorities of departments and divisions are identified more easily.
Budgeting enables a performance audit to determine whether each project or activity has been performed as efficiently as planned.