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(Chapter 5) VARIOUS BUDGETARY MODELS - Coggle Diagram
(Chapter 5) VARIOUS BUDGETARY MODELS
GOOD BUDGETING
focuses on outcomes
CHARACTERISTICS
Rational allocation of resources
Continuous improvement
Clear definition of long term goals
Supported by accounting information system
Managers involvement
DEVELOPMENT OF BUDGET SYSTEM IN MALAYSIA
(2) Programs & Performance Based Budgeting System (PPBS)
Introduce in 1969
Help management make better decision on the allocation of resources to achieve government objectives through the selection of the best feasible alternatives
FUNDAMENTALS OF PPBS
Programs planning & structuring
Developing performance indicator
Identifying objectives
Performance evaluation
CHARACTERISTICS
Emphasizes programs to meet the objectives.
Emphasizes objectives of spending
Focuses on overall agency objectives.
Evaluation of success
Management-oriented
Involved Performance Evaluating
ADVANTAGES
Systematic & continuous performance evaluation
Programs planning & structuring facilitate prioritization
Provides better information on management effectiveness
DISADVANTAGES
Goals & objectives of individual agencies are not clear
Difficult to develop performance indicator
(3) Modified Budgeting System (MBS)
Introduced in 1990s.
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 on the distribution and allotment of funds according to priorities set
To upgrade on accountability especially amongst lower officers.
To improve programs performance in the utilization of funds (improve policy)
To improve public sector accountability through Program Agreements and Exemption Reports
Prudent use of resources without waste, fraud and abuse of power.
Flexibility in management resources
More generalized approach to control the expenditure.
Evaluate the performance of programs and take corrective action
CHARACTERISTICS
Programs Agreement & Exceptions Reports
Limit or ceiling imposed on an agency in the implementation of expenditure
Component
Exisiting Policy
New Policy
One-Off
Programs Agreement
An agreement between the Treasury and the agency on the desired performance on the part of the agency for a particular financial year
Exceptions Reports
A report to be submitted by the agency / programs in the event that targets set in the programs agreement are not achieved.
Cycle of Program Evaluations
An evaluation of the programs to determine the extent to which targets have been achieved.
evaluated once in 5 year
Expenditure Target
Limit or ceiling imposed on an agency in the implementation of expenditure
More generalized approach to expenditure control
MAIN ELEMENTS
Provision of greater flexibility/authority to managers throughout an organization and particularly to the line management leve
Stricter control over aggregate resources whereby supplementary allocations are rarely provided
ADVANTAGES
Departmental Headquarters Level
Line-Management Level
Central Budget Level
(1) Traditional Budget System (TBS)
ADVANTAGES
easily understood by the users
Information can easily be incorporated into the accounting system
detailed comparisons
DISADVANTAGES
not provide useful management-type information
did not give sufficient information to legislators and the public on why the government bought those particular items
did not give the managers freedom/power/authority to adjust allocation according to the needs or situation.
Input orientation which leads to ineffective budget allocation
long run goals of the organization may be jeopardized.
The performance of the budget is measured only from the financial aspect
does not state clearly the purpose of the current and future utilization of resources.
short-term planning
CHARACTERISTICS
Focused on items/objects of expenditure
Concerned with financial input than the output of its activities
Not concerned with the attainments of policy objectives and their relationship to costs
The presentation of the budget is on organizational basis (ministry or department)
Less concerned with the performance
detailed budget examination is entirely based on line item expenditure or objects of expenditure
first system to be adopted (prior 1969)
DEVELOPMENT OF BUDGET SYSTEM IN MALAYSIA
(4) Zero--Based Budgeting System
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
FORMATS
(1)Development of decision packages for each agency
(2)Requires each decision package to be evaluated by top management to determine whether it is justified for further funding
DISADVANTAGES
Takes a considerable amount of time to go through the process of reviewing operations
Require extensive amount of paperwork
ADVANTAGES
Helps managers identify redundancies and duplications among different departments
Specific priorities of departments and divisions are identified more easily
Allows management an opportunity to review operations in depth and make recommendations for changes
enables a performance audit to determine whether each project or activity has been performed as efficiently as planned