Budgeting is an important aspect of financial management in institutions, households and at the national level. A budget outlines how an individual or institution plans to allocate its available resources to address its needs. There are different forms of budgets depending on the kind of institution, the aim of the budget and the size of the budget. These budget types also take different formats to suit the objectives of the budgeter. There are four major types of budgets that are commonly used around the world today. They include; the responsibility centred budget, the NOAA’s program budget, the entrepreneurial budget, the performance based budget in Louisiana and the performance based budget of the USA. Each of these budget types and formats have unique contents and structures that make them suitable for use by specific institutions and individuals.
The responsibility centred budget is a kind of budget that has been related to higher education institutions. These institutions have adopted this kind of budget because of their reform approach. Many educational institutions in USA are trying to start a new budgeting era. They are consulting constantly to identify effective budgeting tools that would help them achieve their organizational objectives according to the strategic plans and increase accountability. These institutions aim at allocating resources, which are often scarce from tuition fees or state appropriations. These institutions use a set of budgeting tools that ensure efficient budgeting.
Responsibility centred budgets have several tools that make this kind of budget efficient. The first major tool is incremental budgeting. This kind of budget involves adjusting percentage allocations on the existing budget. The previous budgets are used as a basis of making the following period’s fiscal budget. This tool is efficient but does not allocate resources appropriately. Another tool is formula budgeting. It uses quantitative measures to determine resource allocation. Many states use this tool to allocate money to higher education institutions. This tool of budgeting is unbiased and ensures equality in the allocation of resources. It also creates incentives to improve education standards.
Zero-based budgeting involves the recreation of the budget from scratch. Each program in the budget is analysed based on its contribution towards the achievement of organizational goals. However, this tool is time consuming. The next format of budgeting is the program budgeting. It involves specification of the manner in which money will be spent and why. It involves cost benefit analysis. This format is effective because the every expenditure is assessed to determine whether it has returns or not. The next budget format is the performance based budgeting format. It is accountability oriented in that it requires the certification of stakeholders to approve any expenditures. This format helps link financial benefits to achieved results. It enhances equitable resource allocation.
Initiative based budgeting format involves reallocation of funds to new initiatives. Existing units of production can only be retained if they are productive. Resources that are not put to good use are identified and returned to the central body for reallocation. This format encourages positive results annually because only productive units are retained.
Therefore, responsibility centred budgeting is value centred. Resources are allocated based on the benefits derived from a certain level of costs. It has been increasingly used in education institutions because it promotes efficiency, equitability and accountability. Institutions that have adopted this system of budgeting include Ohio State University, Southern California University and several state colleges in Minnesota.
The second kind of budget is the National Oceanic and Atmospheric Administration Budget (NOAA). This budget was developed by the NOAA to be used for programming, planning, execution systems and budgeting. This budget views activities from an analytical point and evaluates their contribution towards the achievement of the objectives of the organization. This budget allows policy makers and managers the task junior officials to account for and identify redundancies. They officials must also make a comparison between different activities to determine the opportunity cost of achieving some objectives. This budget was initially dropped because of its inefficiencies. However, improvement were made to make it viable.
The NOAA budget faces several challenges such as coordination problems, external issues and pressure and management reforms. This method is complicated because of the high level of coordination required. It is developed using matrix programs to enhance hierarchy planning and control. NOAA’s complexity makes it difficult to evaluate the initiatives. This budget is based on scientific values which could clash with managerial values. It is also not very practical or conceptual hence limiting the user.
The third type of budget is the performance based budget. It has been used at national level and in states like Louisiana. This budgeting format is result oriented. It creates a direct link between results and resources while maintaining this link through the budget development process. The goals of the organization or state are incorporated into the executive budget development. Performance information is always audited and reviewed to identify activities that require larger allocation because of good performance. In this system, performance is an integral part of the budget and management processes.
The performance based budget has also been used at national level to identify activities that would benefit the country the most. In this form of budgeting, the operational and theoretical views must be included in the budget development process. This method of budget formulation uses the alignment method to align performance measure to different activities. Under resources, there are the financial and human aspects. Under the organizational focus, the mission, activities and services are aligned. Under the customers focus, the outcomes, satisfaction and quality of service are aligned. The links between the resource, organization and customers are inputs, outputs and costs.
Entrepreneurial budgeting is the budgeting carried out by business people on how they will operate their businesses. This budget is designed to allocate resources in a decentralized manner to stimulate entrepreneurial growth. This budget is usually helpful in stimulating the economy to grow fast when used at the national level. There are 3 approaches of entrepreneurial budgeting that can be used in an economy today. The budget gives managers incentives to improve their efficiency. This budget gives administrators extra responsibility to be accountable for the outcomes of their decisions. This is achieved by monitoring the real performance in the organization or economy.
The four kinds of budgets have different formats and details. However, they are all designed to improve efficiency and accountability. However, these budgets have different levels of efficiency because of their details. These budgets can be used in different institutions, economies based on their strengths. The responsibility centred budget is commonly used in higher education institutions. The performance based budget is used in government institutions while the entrepreneurial budget is used by both businesses and governments. The NOAA budget is not commonly used because of the complexities involved in its formulation. However, it is used in developing budgets in scientific organizations.
References
Dan, A. (1993). Entrepreneurial Budgeting: An Emerging Reform. Public Administration Review, 445-454 (10P).
Lane, C. S. (2002). Performance-Based Budgeting in Louisiana. Journal of State Government, 15 (1p).
West, W. F., Lindquist, E., & Mosher-Howe, K. N. (2009). NOAA's Resurrection of Program Budgeting: De ja Vu All Over Again. Public Administration Review, 435-447.
Zierdt, G. L. (2009). Responsibility-Centred Budgeting: An Emerging Trend in Higher Education Budget Reform. Journal of Higher Education Policy & Management, 345-353 (9pp.).
