Goverment Budget

Only available on StudyMode
  • Topic: Budget, Budgets, Zero-based budgeting
  • Pages : 80 (20263 words )
  • Download(s) : 78
  • Published : March 15, 2013
Open Document
Text Preview
CHAPTER ONE

1.0 Background of the Study

The success of any organization either non-profit organization or profit oriented entities is generally influenced by its planning and control mechanisms. The two concepts of planning and controlling must be balanced so as to attain success and development in an organization.

At the planning stage an organization usually stipulates its objectives, missions, visions, goals and means of attaining those objectives with formulation of policies and strategies. While at the controlling stage an organization will concentrate on comparing the actual performance with the budgeted performance and then take any appropriate corrective actions to secure organizational goals or to provide basis for policy revision. Sometimes the planned targets become difficult to be attained due to uncertainties ie;inflation,scarcity of materials, increasing transport costs, natural hazards,etc.Such uncertainties may enforce an organization to alter or adjust its plans and performance standards.

Therefore planning and controlling are inseparable processes that are continuously maintained in an organization .Having good plans while the controls are not effective will not enable the organization to perform well, this is the same as having good controls while the plans are poor. The effective performance in an organization is attained when good plans are married with effective control systems.

Most organizations conduct their planning and control processes through implementation of budgetary control system. Budgetary control system is the system of using budgets as a means of planning and controlling all aspects of producing or selling commodities and services (By J.Batty)
An organization will never lose direction and means of measuring performance if it will implement the budgetary control system. The budgetary control system is useful to all managers in planning and controlling all activities of the organization. The effective budgetary control system is influenced by proper establishment of objectives, strategies and policies, provision of budget education to all employees, planning the standards of performance that are attainable, good communication and co-ordination system etc.

The budgetary control systems exercised in non profit organizations i.e. central and local governments, schools, colleges, hospitals and a range of other organizations is slightly different as compared to trading entities. Lucey (2004) agreed that, although many of the principles of budgeting apply equally to NPO’s and profit seeking organization, a key different is that the latter organization’s budget focus on the relationship between input (expenditure) and output (sales revenue). In NPO’s output are much more difficult to measure so traditionally budgeting has been concerned with making sure that for each expenditure heading actual spending does not exceed the budget authorized cash limits. This has been criticized by Farry for concentrating on what the money is spent rather than what is obtained from the money.

Another problem for NPO’s is that many of their activities and the level of costs are determined elsewhere and thus are much less controllable. Take for example a budget for a local managed school. A major item, often accounting 70% of costs, is teacher’s salaries. The level of salaries is determined nationally and legislation and norms largely govern the number of teachers. As a consequence, a high proportion of costs are not controllable to any significant degree at the school level.

Different is that in trading entities managers are able to control their inputs and outputs in terms of quantity and quality this is due to fact that trading entities have precious objectives...
tracking img