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Friday, July 25, 2014



Budgeting Presentation Transcript

One of the primary objectives of management accounting is to provide information to management for planning and control.  A widely used device for managerial control is the budget.  Because the amount and quality of Nursing Services depended on budgetary plans, nurses should become proficiency will provide the resources necessary for the safe and effective nursing care.

A budget is an estimate of future needs arranged to an orderly basis covering some or all the activities of an enterprise for a definite period of time.                                                                              T.N.Chhabra
Budgeting is the formulation of plans for a given period in numerical terms.                        Harold Koortz

  • Budget supplies the mechanism for translating fiscal objectives into project monthly spending pattern.
  • Budget enhances fiscal planning and decision making.
  • Budget clearly recognizes controllable and uncontrollable cost areas.
  • Budget offers a useful format for communication fiscal objectives.
  • Budget allows feed back of utilization of budget.
  • Budget helps to identify problem areas and facilitates effective solution.
  • Budget provides means for measuring and recording financial success within the objectives of the organization.
  • It should be flexible.
  • It should be synthesis of past, present, future.
  • It should be product of joint venture for co-operation of executives department heads or different level of management.
  • It should be in the form of statistical laid down in specific numerical terms.
  • It should have support of top management throughout the period of its planning and implementation.
  • Budget is needs for planning for future course of action and to have a control over all activities in the organization.
  • Budget facilitates co-ordinating operation of various departments and section for realizing organizational objectives.
  • Budget serves as a guide for action in the organization.
  • Budget helps one to weight the value and to make decision when necessary or whether one is of a greater value in the programme that the order.
  • Budget should provide sound financial management by focusing on requirement of the organization.
  • Budget should focus on objectives and policies of the organization.  It must flow from objectives and give realistic expression to the way of realistic such objective.
  • Budget should ensure the most effective use of scarce financial and non financial resources.
  • Budget requires that programme activities planned in advance.
  • Budgetary process requires consistent delegation for which fixed duties and responsibilities are required to be allocated to managers at different level for framing and executing budget.
  • Budget should include co-ordinating efforts of various departments establishing a frame of reference for managerial decision and providing certain criteria for evaluating managerial performance.
  • Selling budget target requires an adequate checks and balance against the adoption of too high or too low estimate, almost care is a must for fixing targets.
  • Budget period must be appropriate to the nature of business or service and to type of budget.
  • Budget is prepared under the direction on the supervision of the administration or financial officer.
  • Budget are to be prepared and interpreted consistently throughout the organization in the communication in the planning process.
  1.     Incremental budget
  2.     Open ended budget
  3.     Fixed ceiling budget
  4.     Flexible budget
  5.     Roll over budget
  6.     Performance budget
  7.     Programmed budget
  8.     Sunset budget
  9.     Sales budget
  10.     Production budget
Classified on the basis of :-
  • Coverage of functions – Master & Functional budget.
  • Nature and activity covered – Capital & Revenue budget.
  • Period of Budget – long term and short term budgets.
  • Flexibility adopted – Fixed and flexible budget
  There are mainly two types of budgeting.   
  1. Performance Budgeting
  2. Zero base budgeting.
1. Performance Budgeting-

A performance budgeting is an input/output budget or costs and results budget.  It shows costs matching with operations.  Performance budget emphasis on non financial measures of performance which can be related to financial measures in explaining changes and deviation from planned performance.  Performance measurement are useful for evaluating past performance and for planning future activities.  Performance budgeting, results into the following.
  • It correlates the financial and physical aspects of every programme or activity.
  • It improves budget formulation, review and decision making at all levels of the organization.
  • It facilitates better appreciation and review of organizational activities by the top management.
  • It makes possible move effective performance audit.
  • It measures progress towards long term objectives.
2.Zero base budgeting.
  • This was applied for the first time in preparing the divisional budgets of Texas instruments of the USA in 1971.
  • Zero base budget is based on a system where each function, irrespective of the fact whether it is old or new, must be justified in its entirely each time a new budget is formulated.  It requires each managed to justify his entire budget in detail from scratch that zero base.
The process of zero base involves four basic steps.
  1. Identification of decision units,
  2. Analysis of each decision unit in the context of total decision package.
  3. Evaluation and ranking of all decision units
  4. Allocation of resources to each unit based upon.
  • Identifies the importance of and develops short a long range fiscal plans that reflects unit needs.
  • Articulate and documents units needs effectively to higher administrative levels.
  • Assess the internal and external environment of the organization in forecasting to identify driving forces and barriers of fiscal planning.
  • Demonstrate knowledge of budgeting and uses appropriate technique.
  • Provide opportunities for subordinates to participate in relevant fiscal planning.
  • Co-ordinates unit level fiscal planning to be congruent with organizational goals and objective.
  • Accurately assesses personal needs using predetermined standards or an established patient classification system.
  • Co-ordinates the monitoring aspects of budget control.
  • Ensure that documentation of clients need for services in clear and complete for facilitate organizational reimbursement.
  • Planning, budgeting or forecasting is not an exact science; it uses appropriately and judgment which may not be 100% accurate.  At best a budget is an estimate no one knows precisely what will happen in the future.
  • The success and utility of budgeting depends on the co-operation and participating of all members of management.  All person should direct their effort according to the plan.  Many time budgeting has paid only lip services to its executing.
  • A budget is only a tool and neither eliminates nor takes over the place of management.  A budget cannot be substituted for management but should only be used by management for accomplishing managerial functions.
  • The establishment of a budgeting process takes time.  Also sometime too much is expected from a budget and in case expectation are not fulfilled the blame is put on the budget.  An efficient budgeting program requires that responsible person should understand the philosophy, objective and essential of budgeting.

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