Methods of Budgeting

Topics: Zero-based budgeting, Budget, Budgets Pages: 38 (11535 words) Published: April 14, 2013
Research and Library Services

Northern Ireland Assembly

Research Paper 06/10

January 2010


A paper that presents different approaches to budgeting in the public sector along with case studies of their application by various organisations internationally.

Library Research Papers are compiled for the benefit of Members of The Assembly and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public.

Northern Ireland Assembly, Research and Library Service

• As a budget is a forward plan expressed in money terms, it is unlikely that any refinements to the budgeting process will ever enable budgets to be perfect. By nature they contain a level of assumption about uncertain conditions. Budgeting in the public sector can be viewed as more problematic than in the private sector. There is no profit or loss bottom line by which the performance of organisations can be measured. Further, measurement of the outcomes of public-spending programmes can be problematic. This makes the alignment of the budget process with intended outcomes a complex task. Public sector organisations such as government departments are large and complex. They design interventions across a wide range of policy areas and have to balance competing pressures. The current process of incremental budgeting for departments in Northern Ireland has a number of drawbacks. Some of these problems could probably be lessened by moving to alternative approaches to budgeting. But any alternative approach will also have its own drawbacks. And some of the approaches outlined in this paper can be very resource-intensive. It is often difficult from the budget documents presented to see how departmental spending is aligned with the priorities of the Programme for Government. For example, the tables presented following the quarterly monitoring rounds indicate departments’ reduced requirements. They also show proposed reallocations. But there is no explicit link between the reallocation of money and departmental objectives or performance. Alternative approaches to budgeting outlined in this paper attempt in various ways to make more explicit the link between budgets and performance and outcomes.

Providing research and information services to the Northern Ireland Assembly

Northern Ireland Assembly, Research and Library Service

Page Number Introduction 1. 2. 3. 4. 4.1 4.2 4.3 4.4 4.5 4.6 5. 6. 7. Budgeting basics Incremental budgeting Zero-based budgeting Alternative budgeting techniques Priority-based budgeting Decision conferencing Planning programming budgeting Performance-based budgeting Participatory budgeting Resource-restricted budgeting Budgeting in uncertain conditions Adjusting the budget Concluding remarks 1 3 5 7 13 13 14 14 15 18 21 22 24 27

Providing research and information services to the Northern Ireland Assembly

Northern Ireland Assembly, Research and Library Service

In June 2007 consultants PKF published a review of the forecasting and monitoring of financial information in the Northern Ireland Civil Service on behalf of the Department of Finance and Personnel (DFP). The report highlighted examples of good financial management practice in departments but also made a number of recommendations for improvement. Recommendation 4 of the report was that in the medium term: the planning and budgeting process should move away from the existing incremental approach.[emphasis added] This would first involve the development of a more transparent link between inputs and outputs, and would require, and indeed facilitate, greater challenge by Board members based on historic performance, thus enabling the setting of budgets that are better linked to performance targets. Performance would be subsequently monitored on a monthly basis through an...
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