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Question: What are the three principal purposes of budgeting? What are the three major corresponding budgeting systems?

08 Oct 2022,10:10 PM

 

Program development involves learning and understanding the major principles and models of budgeting. Budgeting for financial control of a human services program involves making decisions about managing the budget, including selecting the appropriate method based upon how the program is structured.

Please respond to the following:

Explain the concept of financial control.
Describe how the financial control purposes of budgeting deals with the relationship between revenues (inputs) and expenses (activities).
Identify the three major models of the budgetary process.
Describe the similarities and the differences within the models.
What are the three principal purposes of budgeting? What are the three major corresponding budgeting systems?
Describe the similarities and the differences between the three.
In your opinion, should small nonprofit organizations hire outside consultants to help them with budgeting issues, or should they develop their expertise in-house? Use your text or other professional resources to support your answer.

Expert answer

 

The three principal purposes of budgeting are to: (1) ensure that the organization has enough money to meet its obligations, (2) make sure that the money is spent efficiently and effectively, and (3) track financial performance. The three major corresponding budgeting systems are: (1) line-item budgeting, (2) program budgeting, and (3) performance budgeting.

 

While line-item budgeting focuses on inputs and outputs, program budgeting emphasizes outcomes. In other words, program budgeting asks the question, "What difference did we make?" Program budgeting also forces managers to think about how their programs work together to achieve desired results.

Performance budgeting goes one step further and links funding to measurable outcomes or results. This type of budgeting is sometimes referred to as "pay for performance." It is based on the premise that if an organization can measure something, it can manage it.


 

Budgeting is a critical tool for financial management because it allows organizations to track actual results against desired outcomes. By comparing actual results to budgeted amounts, organizations can identify areas where they are overspending or underspending. This information can then be used to make adjustments to future budgets.

 

Organizations use different types of budgeting depending on their needs and goals. There is no one "right" way to budget; the key is to find a system that works for your organization.

 

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