i387c managing information services and organizations
Module 3. Unit 2: Fiscal Management - Planning and Managing Budgets
Peter Drucker instructs managers that fiscal planning and management are an application of "controls" to steer an organization. Managers of all types must understand appropriate use of "control" and "controls" to successfully participate in the management of delivery of services and products.
The budget is one of the manager's most important tools. Carefully crafting a budget can be key to obtaining additional resources. There are three ways to improve the budgeting process to ensure sufficient control over expenditure of resources.
Because gaining resources is a very competitive process, the manager needs to be high in the administrative hierarchy, eloquent in articulating budget needs, and persistent in following thorough with questions or concerns from the budget granting agency.
As a planning document, the budget is a presentation of the organization's objectives in terms of specific programs to be carried out during a specified period of time -- usually one year. For libraries, focus is on the operating budget, and sometimes there is also a capital budget (for large items such as a renovation, or major equipment.) Following is a simple overview of major kinds of budgets.
I. Line Item Budget
Line item budgets are the most common type of budget and are often called incremental budgets, because typically just a small amount of funding is added each year. The advantages of a line item budget are:
People understand that costs always go up! The big disadvantage is that there is no relationship between the budget request and objectives and priorities, and it is different to transfer from one line item to another. Finally, the line item budget negates change. It tends to project the past into the future. View http://www.iastate.edu/~vision2020/Phase2/proposal9.html and http://www.prm.nau.edu/prm426/sample_line_item_budget_format.htm for some examples of line item budgets. You can find others by doing a simple Google search.
II. Formula Budget
The formula budget is sometimes used in large library systems, and state or federal agencies. It uses predetermined standards for allocation of resources. Budget criteria are established and then applied across the board to all units within the system. For example:
The type of budget is focused on input rather than activities. For example, one rather basic formula standard is that academic libraries should get at least 6% of the total university budget. For some examples of formula budgets see the formula used by the Surrey County Council (UK) primary and secondary school or the example given by Mr. Brian Wheeler's of Charlottesville, VA who is on the School Board.
III. Program Budget
Program budget is concerned with the organization's activities, as opposed to expenditures - goes hand-in-hand with strategic planning. Based on establishing costs of individual programs, so one can look at the total costs of a program and decide whether to continue, modify and delete. For examples, please see the Budgeting Handbook for Texas Counties.
The advantages of a program budget are:
IV. Performance Budgets
Performance budgets are similar to program budgets, but here the emphases is on costing out functions a la Taylor. How much should it cost to process a book ... from ordering the title to putting it on the shelf. All fixed costs are added in. Emphasis is on quantity not quality.
V. Planning, Programming, Budgeting Systems (PPBS)
PPBS is a form of planning a combination of program budgeting and performance budgeting. First, goals and measurable objectives are established. Then develop costs of achieving each of the objectives including alternate ways to achieve the objectives with cost benefit rations presented for each. (See page 373 in text.)
VI. Zero Based Budgeting
Focus on two basic questions
With ZBB each unit of the budget must be justified, and placed in a hierarchy. Activities are broken into packages and funds are allocated by priority until all funds have been expended, and the cut off point is reached.
This process requires the identification of goals and objectives, the reason for the activity, consequences of not implementing the package, detailed measurement of performance and costs of the activity. Ranking decision packages focuses decisions about the most important activities in each unit of the organization. After each unit identifies its priorities, the priorities of all units are amalgamated into one pool in light of the decision package's importance to the total organization.
Basically, ZBB is not concerned with the past, but with what should be done in the future. By forcing staff to identify areas of greater and lesser importance, it emphasizes standing among all units of the organization. ZBB can be threatening to staff - the fact that each program starts in the lineup at zero base every year.
The advantages of ZBB are:
The disadvantages of ZBB are:
VII. Allocation Revision Accountability Systems (ADAP)
ADAP combines aspects of PPBS and ZBB. Normally, the organization or unit submits three budgets
Administrators are asked to identify whole programs that could be eliminated.
thanks to patrick williams for template design
Last update 24 june 2006