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VARIOUS BUDGETARY MODELS - Coggle Diagram
VARIOUS BUDGETARY MODELS
Good Budgeting Characteristics
Managers Involvements
Clear definition of long term goals
Rational Allocations of Resources
Continuous improvement
Supported by accounting information system.
Traditional Budgeting System (TBS)
Also known as Line-Item Budgeting system (LIBS). Detailed budget examination is entirely based on line item expenditure
Characteristics of TBS
Focused on items/objects of expenditure
Concerned with financial input than the output of its activities
Not concerned with the attainment of policy objectives and their relationship to costs
The presentation of the budget is on organizational basis (ministry or department) rather than looking at expenditures of a particular program.
Less concerned with the performance
Advantages of TBS
Simple budgeting system and can be easily understood by the users. Hence, facilitate the users in preparation of the budget
Information presented from this budgeting system can be easily be incorporated into the accounting system. This is because, transaction are categorized based on objects of expenditure that is similar to the government accounting system.
Budgeted and actual revenues and expenditure ensures detailed comparisons to be made.
Drawbacks of TBS
Data provided is useful primarily for short term planning only.
Information presented in the budget expenditure does not state clearly the purpose of the current and future utilization of resources
As a result, the long run goals of the organization may be jeopardized
It is oriented more towards providing a framework of financial information that compiles with legal requirements rather than providing useful management-type information
Emphasized 'what the government bought and not on what the government did'.
It did not give sufficient information to legislators and the public on why the gov bought those particular items.
It 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
Budget document are too bulky and long because they comprise all detail information of what they have bought for all categories
The performance of the budget is measured only from the financial aspect that is on actual expenditure incurred. Thus, the information on the effects, outcome and benefits of the programs and activities undertaken are not emphasized.
Programme and Performance Based Budgeting System (PPBS)
This system helps management make better decisions on the allocation of resources to achieve government objectives through the selection of the best feasible alternatives.
Fundamental of PPBS
Identifying objectives
Programs planning and structure
Developing performance indicator
Performance evaluation
Characteristics of PBBS in Malaysia
It focused 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
It is management-oriented. use the principle 'let managers manage'
Advantages of PPBS
Provide better information on management effectiveness
Systematics and continuous performance evaluation furnish information for future planning and decision making
Programs planning and structuring facilitate prioritization
Drawbacks of PPBS
Goals and objectives of individual agencies are not clear
Difficult to develop performance indicator
Modified Budgeting System (MDS)
Based on fundamental management principles of Letting managers manage. Aim to improve resources allocation by bringing more efficient management of government programs trough improved accountability.
Objectives of MBS
To improve programs performance in the utilization of funds
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 Agreement and Exemption Reports (to avoid fraudulent activities)
Prudent use of resources without waste, fraud and abuse of power
Flexibility in management resources- provide freedom for the programs manager to adjust the allocation given
More generalized approach rather than a stricter approach to control the expenditure
Evaluate the performance of programs and take corrective action to overcome the problems identified.
Characteristics of MBS
Expenditure target
Programs Agreement and Exceptions Reports
Cycle of Program Evaluations
More generalized approach to expenditure control
Advantages
central budget level
improve identification of priority expenditure in budget submission
Reduce paperwork in the preparation of budget submission and in the conduct of budget examination
allow more time to discuss new policy proposal and its modification
To provide the Budget Management Division with better information on programs performance
Department Headquarters Level
Increase the department opportunity to use strategic planning as the basis for budget preparation
Enable more top down approach to budgeting
Enable controlling officer to play a more active role in budgeting and to use it as a management device
Improve communication of top management priorities to lower level managers and staffs
Allow finance divisions in headquarters to become more involved in matters of programs policy and programs evaluation and less in matters of line-item control.
line Management Level
To improve motivation among line managers through increasing awareness and understanding of top management priorities through programs agreement
Greater flexibility in the development of resources within aggregate constraints
To enable budget preparation at the line-management level to take place at the same time as the preparation of work plans, that is two or three months before the beginning of the year and thereby make budgeting at this level a more meaningful exercise
To enable the financial plans regarding inputs, output, and impact to be used as a management tool
To enable better integration of decision-making of financial and programs policy.
Critical Evaluation of MBS
The term MBS itself is unclear or unsuitable. Normally, the name of a budget system should reflect the concept on which it is based.
MBS is only a package of modifications to the budget process- as the Consultant, Rizui an Australian himself suggested. Note that, during the budget examination, the existing policy is considered first and the new policy and one-off proposal are considered next.
MBS has all the element of PPBS, hence, it cannot be considered as a Separate or new Budget Systems
The Program Agreement prepared under MBS helps the operating agencies concentrate on the target or output or impact agreed to be achieved in a given year. This is a positive thing about the modification to the budget process.
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. Burden of proof o the manager and demands justifications for the entire budget in detail.
The format of ZBBS
Development of decision packages for each agency. each package will contain a summary analysis of each program within the agency. These packages are ranked by the agency head in accordance with his or her perception of overall agency priorities
Requires each decision package to be evaluated by top management to determine whether it is justified for further funding. Programs that are considered ineffective are either discarded, modified or combined with other agencies for cost efficiencies.
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 department and divisions are identified more easily
Budgeting enables a performance audit to determine whether each project or activity has bee performed as efficiently as planned.
Drawbacks of ZBBS
Takes a considerable amount of time to go through the process of reviewing operations in enough detail to justify costs each budget cycle without relying on past expenditures
Requires extensive amount of paperwork