Research Korner: Budget Process Essays

EFFECTIVENESS OF BUDGETING IN LOCAL GOVERNMENT

Effectiveness of budgeting in local government         The research will look and understand imperative aspects as well as factors relating to government budgeting particular on budget effectiveness placing in context towards Anguilla’s local government. The need to integrate and assimilate preliminary literature studies in reference to effective budgeting and government processes and ways catering to budgeting informative routes coming from various secondary research sources. The core method will deal towards descriptive approach pertaining to case study analysis and interpretations this will be manifested by means of survey questionnaire through survey statement formats from within five point scaling system will be used in order to have empirical basis and foundation of effective budgeting in local governments, Anguilla’s context stature. The participants will comprise of government employees who served in local government functions for more than six months time and to those regular government employees under the budgetary division of Anguilla’s local government sectors. The statements can integrate following example content such as:   1- Strongly Disagree  2 - Disagree  3 - Neutral  4 - Agree 5 - Strongly Agree                      EXAMPLE STATEMENTS State governments are incorporating more sophisticated tools into their budgeting or management processes and finding them effective 1 2 3 4 5 The increased interest in developing more effective procedures and providing a stronger data base for program analysis and evaluation is shared by both executive and legislative branches 1 2 3 4 5 Owing to recently developed analytical and technical tools, government budget management systems can help promote gender equality to the extent of government involvement in work sensitive sectors and programs 1 2 3 4 5 There points to problems in the design and management of these systems and questions their effectiveness as policy tools for increasing governmental accountability 1 2 3 4 5 Budgetary information is used for management decisions when it is available 1 2 3 4 5   The asking then of question like, what strategy could boost performance measurement in local government beyond the current level that finds most cities predominantly reporting raw workload figures, if they report any performance indicators whatsoever? There argues that increased emphasis of relevant performance comparisons-with other local governments and with appropriate standards could capture media and citizen attention and thereby prompt greater accountability. Evidence is presented showing that relevant standards and actual performance figures suitable for comparative purposes, though hardly plentiful, do exist in selected municipal functions. Research will examine concept of employee work responsive government budgeting as promoted in years by women's nongovernmental organizations, academia, and multilateral organizations, the extent of its implementation by national governments in the region. However, the lack of appropriate budget classifications, the lack of government employee analysis expertise and imperative data will be needed to be addressed.  Thus, presenting such framework of research into government oriented of Anguilla’s budget process as institutional rules governing the budget process can be found to limit the importance of certain fiscal illusion, the empirical evidence supports the latter proposition. The choice of rules depends on political environment as well as the dominant source of uncertainty in the budget process. Recent surveys have indicated that 12 state governments, several municipalities, and the federal government have implemented ZBB system ( and , 1979 ), experiences of ZBB users in the private sector from the perspective of individuals who have implemented such systems has been well documented in the literature. Thus, few has been written about the appropriateness and effectiveness of using ZBB in the public sector. The attempts to bridge the knowledge gap on the use of ZBB in the public sector by reporting the findings of research project exploring the use of ZBB in local governments. There concerns with extent to which ZBB is used in municipalities, analysis of the structure of the ZBB process in practice, characteristics of user cities and the rationale for use of ZBB, benefits and problems associated with the implementation of ZBB in local government ( and , 1979 ).  Program budgeting has checkered history, being considered alternately great advancement or an unworkable system. Little has been written about the consequences for the organization that has adopted it as information generated by planning programming budgeting is used for decision making but in limited way. The research will expand discussion of punctuated budgets to the level of local government by determining that local government expenditures have the characteristics espoused by the punctuated equilibrium theory. There also determines the frequency of punctuations and the probability for future punctuations (, 1987). The research findings might show that some budget functions and policy types are more prone to punctuations and have less stable agenda. The practical significance of extending punctuated equilibrium theory to local government budgeting is the implication on planning, forecasting, the agenda setting process.   References

EFFECTIVENESS OF BUDGETING IN LOCAL GOVERNMENT

Effectiveness of budgeting in local government The research will look and understand imperative aspects as well as facto...

Budgetary Control System

Budgetary Control System Plans, performance and corrective action need to be expressed in some common, quantitative form, the most obvious one being financial in nature. A financial budget provides the means to set out the parameters of a chosen course of action, the guidelines against which to compare actual performance and the basis upon which to modify the initial plan if necessary. A budget thus provides the means to report on the performance of all aspects of an organization’s activity on a regular basis which in turn allows the systematic review of all areas of activity (1992). The information which it provides allows line management to make the decisions which are necessary to realize the objectives set for them by their senior management. It is in this way that management accounting provides the necessary financial information for managers faced with the task of decision-making, planning and control ( 1992).   The identification of management accounting with the development and operation of effective budgetary control systems may initially appear to portray only one, albeit a major, aspect of this branch of accounting. In most texts equal attention is paid to product and variable costing and invariably the study of budgeting is shared with standard costing and variance analysis. Then there are the more advanced topics: opportunity costing, performance measurement, transfer pricing and those associated with the information economics approach to decision-making. Research too has traditionally covered a much wider range of topics. But in the last analysis most texts begin by stressing the significance of management accounting for decision-making, planning and control, thereby emphasizing the management control/budgetary control linkage, explicitly or otherwise ( 1992). In the sphere of practice, management accountancy and the development, implementation and operation of budgetary control systems have traditionally been synonymous for many of those involved. It is also the connection which provides part of the explanation of why a growing number of management accounting researchers have become increasingly interested in sociological ideas during the past decade (1992).    In regulating the amount of expenditure spent in the public relations department of a public utility company, a budgetary control system cam be used.  The budgetary control system of the public utility company contains two parts. The first part contains the resources of funds. The company gets its funds from the allocation of the government. It also gathers funds by having its own stocks from private companies.  The second part contains the expenses of the company. The expenses of the company involve the different payments done on rents and the different salaries of the personnel. The total expenditure of the company is $200.000.00 and the total number of staff is 20. It is anticipated that the amount of expenditure spent by the Public Relations department is roughly proportional to the turnover of the company. This means that a                                                                                                                                                                                                                                                                                as the company earns additional expenses it is forced to have opportunity in making the best use of the turnover. Importance of budgeting Like any other client group, businesses must pay market interest rates to raise funds. However, in contrast to other client groups, large corporations are less likely to face limits on the amounts of funds they can raise. Large businesses can usually raise funds quite readily so long as they can show financiers that proposed expenditure plans are likely to prove profitable. Nevertheless, even large firms may find fund raising difficult if they are entering new lines of business and financiers are not fully familiar with their proposed projects (1998). The time periods needed for financiers to become familiar with new types of business can be relatively long and during that time funds may be either expensive or limited when viewed from the perspective of the business trying to raise the funds. Different sources and different terms of borrowing can sometimes serve as substitutes (1998).   In such cases, especially if long term borrowing rates are also judged to be high, management may use internal financing with the hope of later raising external funds on more favorable terms. In other instances a project may be deferred in the hope that subsequently external financing will be available at lower effective rates (1998).  The public utility company has to make use of different kinds of fund raising techniques if it wants to sustain its longevity in its industry, if the public relations department doesn’t want to generate its own income it must ensure that it will maintain a precise expenditure and it has to make sure that the budget will be strictly followed.

Budgetary Control System

Budgetary Control System Plans, performance and corrective action need to be expressed in some common, quantitative form, the most obvio...

EMERSON PERFORMANCE BUDGET SYSTEM

EMERSON: THE QUEST TO IMPROVE THE BUDGET SYSTEM    Introduction             Emerson can be considered as a cost-averse firm due to its historic reservation and cultural infusion of continuous cost-effectiveness activities in its operations.  However, without an effective budget system, the culture could draw them into the pit of zero-innovation and sub-optimal value-adding activities.  They perform industry scanning before budgeting so it is helpful to implement a certain method that can maximize the environmental information and its relative impacts to internal operations.  Thus, the introduction of performance-based budgeting is suggested to this end.  Presented in the paper is the description and evaluation of Emerson budget system and the beneficial contribution of performance budget not only to its financial but also business performance.      The Firm and its Budgeting System             Emerson Electric Company is a US-based manufacturer that produces electric motors and computer support systems.  It gained prominence due to  30-years continuous growth in profit and stock value.  The key exists in goal-orientation is when the business managers presented at least 40 divisions plans and executes independently, while the headquarters serve as the monitoring administrator of key result areas.  In 1998, the $8B firm showed business simplicity is truly beauty in empirical sense primarily which attributed to its financial track-record.  CEO  believed that providing the environment for unit managers to plan their own group’s targets and its concurrent budget line will lead to responsibility and accountability that makes smooth implementation and result-based approach to execution.               Planning is decentralized to general managers of each division including strategy formulation and operations.  They set their own targets together with other subordinates.  They work for months initially determining SWOT in the external environment and capital expenditure required to exploit or mitigate them.  Afterwards, the 50-year old ideology of cost-reduction goals, a way of life in the firm is formulated and gave managers the pro-active view of what activities should be done in the coming year to align in this firm culture.                Strategic guidelines in planning and budgeting are followed.  First, employee involvement is aimed for managers to get useful information from different sources and at the same time create a mechanism wherein resistance to change could be minimized.  Second, competitive position is protected through continuous improvement in the value chain, assessing their resources and capabilities with rivals and product innovation.  Finally, prudence in capital expenditure would give the planners rationalized trade-offs between investments (improvement) and accompanying costs (departure to cost-reduction culture).                Crucial to the firm is to achieve the designed results through rigorous planning and tight control.  With this, they can shape the future as they have intended while profitability is considered merely a state of mind and not a chance.  Also, how they will determine the results is largely dependent on operational level where long-run performance is deemed to stem.  While the firm does not have complex business papers to reflect their plans, simplicity would fill the gap as it will foster discipline to employees driving them to pre-determined objectives and work practicality.         System Evaluation             As observed, Emerson has been able to minimize complexity of planning and remain objective in installing goals.  The most knowledgeable, proximate and concerned people relative to resource and capabilities are the one who will allocate resources.  These results to less effort and time devoted to arrive at reasonable forecast of results.  Whatever the information they would use (cash, accrual or modified accrual) and template or software to be utilized, operating budget emerged through the minds of those who experienced budget shortage/ surpluses and who applied certain contingencies on emergency situations.  Thus, only objective matters rather subjective or gut-feel are inputted to determine financial results.  With this, determining the reserve budget need not be outsourced to an engineering firm while future revenues/ expenses are easily deciphered from the past year.  As a result, there will be optimal resolution to avoid revamping that could arise in special assessments.                   However, there are also loopholes in simplicity and cost-reduction scheme of the firm.  First, since their major concern is scanning the industry and competitive environment, decentralization may increase research and monitoring costs for detriment of consolidated efficiency.  Second, cost-reduction culture and emphasis on short-term gains could impede innovation and value-adding activities that could result in imitable competitive advantage as cost-cutting and price based competition have lower switching costs than value based ones.  Lastly, oversimplification of setting annual budget would shift the manager strategies towards practical approach to recognize contingency opportunities/ threats that is risky for the division’s contribution for the whole organization.                Of course, the headquarters (HQ) is there to signal and apprehend the concerned division about symptoms of departing to activities determined in budget planning to arrive at results so these loopholes can be easily resolved.  However, it is questionable that they can always decode what is in each manager’s heads.  As a result, the picture seen by the HQ could be myopic that instead of enhancing the focus of the division to its goals, it would rather annoy and confused managers.  It is not disclosed how strict is the monitoring of HQ and what disciplinary actions would be resorted, but our concern is a definitive structure that would lessen incidence of failure notification from HQ to division managers.  With short-term operational lens applied, increase reliance to financial assets would undermine intangible resources such as human capital, innovation and reputation.                   Apparently, the CEO’s belief to natural efficiency across the firm’s divisions has its trade-offs.  Without caution, competitive advantage can only be sub-optimal.  It is also observable that some of its planning guidelines are in conflict like being competitive with financial prudence and decentralization initially, but party centralization in execution as HQ monitors the implementation of each division.  As a result, there is a need to fill these gaps by providing a clearer border line between HQ oversight and managerial flexibility using budgeting techniques from academic sources and best practices.   The Technique and Tools for Analysis                      Performance-based budgeting is mission-driven, result-oriented budgeting that can clearly explain how Emerson would achieve cost-effectiveness in a consistent and sustained way.  This form of budgeting details the cost of each activity- a certain organizational unit will perform that is tied with specific goal or performance level.  For Emerson, efficient allocation of resources is a culture so the analysis would involve the economic aim of budgeting which is to achieve the best use of resources wherein benefits from expenditures are worth of their costs in terms of the sacrificed or displaced alternatives.  Using this lens at the fore requires measurement of activities according to their incremental values and relative effectiveness although we should not hesitate to suggest modification and enhancement in its view on making annual budget to maximize the discussion.        Emerson Annual Budget: From Bad to Good             It can be argued that Emerson would likely use the line item budget to adhere in its simplicity.  However, it does not show what key activities or programs of the firm will undertake that makes the HQ monitoring of division operations more unpredictable since both units do not have the map to guide their actions (divisions) and reactions (HQ).  Aggravatingly, performance evaluation would highly depend on the level of periodical expenses since results in the annual budget for a specific activity is not indicated.  Uncertainty of number results would basically make the budget yardstick futile.               Performance budget can ease the pressure of HQ to invest in monitoring mechanisms and to safeguard division’s adherence to their determined budget and results.  The system will highlight key activities or those with relatively higher investment and crucial results providing the HQ key areas to look at.  This could finally infuse strategic planning to the firm in order for specific steps back-up the objectivity of a certain project.  Day-to-day operations oversight will be minimized instead diverting monitoring endeavors to the long-range actions and responses of division managers including their contingency decisions.  Also, indirect cost of follow-up by HQ will be prevented like managerial demoralization leading to decrease in productivity due to frequent inquiry of HQ officials when an activity is done (incurring cost) without its presence in the determined annual budget.                As divisions can overcome cost-reduction culture through research supported activities, innovation will not be neglected primarily because of supply-side cognition of making budget.  They can also transfer the additional or increased financing of a major activity like product development against trade-off in minor activity like firm funded parties.  Priority areas are highlighted due to the existence of target outputs and their costs.  As a result, managers can easily evaluate possible manipulation of operational areas financing for firm to bear the value-adding and sustainable feature of strategic planning.  In effect, cost-reduction would not limit growth of the firm, instead, it will provide the platform to efficiently use its resources and improve its capabilities in view of its valuable contribution in allowing them to manipulate the flexibility of internal activities in favor of exploiting opportunities from the environment.               Contingency decisions during the operational year of division managers could also be limited and rationalized by the system.  The budget ceiling implored in contingency account and its desired results will possibly mitigate the effects of an abrupt competitive wide-scale advertisement, will give the HQ and division managers the objective benchmark in which to base their actions-reactions.  Of course, the HQ wants to protect shareholders and long-term stability of the whole organization.  On the other hand, divisions intend to show performance that can differentiate them from other division and possibly get a higher budget for the succeeding fiscal year.  The system will enable HQ and divisions to lobby their oftentimes conflicting goals of agency relationship in financial terms, thus, preventing them to argue in objective terms in case one request departure to the original budget due to unforeseen events (failure to reach quarterly sales quota due to increase in imported raw material costs).   Emerson Annual Budget: From Good to Better                    Although the firm is successful in bridging simplicity of operations to reduce complexity and objectivity of planning, it does not have the budget database for all divisions to figure-out possible integration of individually determined activities.  Division 1 would implement a strategy which is partly  or the same  as Division 4.  With measurable results opposite to investment needed in performance budget, the HQ can identify possible synergy between two or more division having the same level of significance tied to a certain project.  This can enhance the lobbying power of divisions to demand higher annual budget since they exhibit similar decision and priority patterns.                In addition, it can promote harmony across the divisions including HQ relations.  Decentralization somewhat bring competitive tendencies between divisions to prove their worth of the annual budget and other division benefits.  When they are aware that their projects are compared with others especially those that require large amount of investment, it would suggest teamwork and platform to remind them that they are working for one company.  Also, HQ would have better company-wide planning as inputs from divisions who examined and looked for a possible joint project or intensive sharing of resources.  As a result, the supposedly determinant of strategic direction of the whole firm would have greater inclination to leverage individual division’s operations intended to reach corporate long-term goals.                Further, using the system will strengthen the firm’s SWOT analysis because it requires substantial data, in this case, both external and internal data.  Each division would then give ample effort to study the general environment on top of competitor and internal analysis.  Of course, major activities would delimit their research endeavors since it needs huge organizational resource than minor and regular activities.  This will not only build a bounded budget that is within achievable and calculated risk framework, but also stimulates human resources reception to both internal and external updates.  In effect, they can argue their ideas during planning that will be the source of confidence to discuss the matter in front of the managers.  This will support employee participation in decision making.               Finally, the supply-side stance of the firm could appreciate the importance of result-based approach to planning.  This will minimize the tendency of the firm to be cost-averse despite of strong value chain and determined opportunities.  It will provide the backbone to believe that budgeting is the means to an end and not simply awarding a budget to the end skipping the value-adding capability of improving the execution of the means.  With two lenses at hand, Emerson would simply use the one appropriate to a divisional activity balancing the long-term and short-term prospects including accompanying costs and benefits.  This will support entrepreneurial tendencies and creativity that is crucial to a globalized firm’s survival and profitability.    Conclusion                    As said, using cost-leadership strategy is ineffective when the firm is unable to meet the acceptable level of goods and services it offers to customers relative to competitors.  As a result, performance based budgeting could drive the organization to maximize the purpose of competitor and internal analysis by inputting activities that will respond to the finding through exposing them in the annual budget.  Supposed that the competitor decided to directly compete in the market of Emerson, a large and innovative firm could drive it away in the industry due to its capability to absorb looses due to liquidity.  It can indicate clear distinction and functionality of several major activities while testing cost-reduction regimes employable to them and would be set-aside as to give way to full divisional accountability to meet results.                Even though the system has benefits, it should be cautioned that extensive research is required to arrive at objective activities.  Also, minor activities or those that are done every year are impractical to provide neither varying results nor extensive research as this would depart to simplicity culture of Emerson.  In aggregate, what the system aspires to the firm is to adhere to their begging-of-the-year promises (divisions) wherein HQ has invested scarce resources to finance.  It is an effective tool to promote responsible and accountable decentralized divisions, supportive and firm HQ and efficient allocation of resource in case of meeting the intended result or extending it.  It will also measure the credibility of managers and financial tolerance of HQ concretizing the learning curve in budgeting and testing effectiveness of cost-reduction culture at the same time.        Bibliography Book Periodicals   Electronic Sources

EMERSON PERFORMANCE BUDGET SYSTEM

EMERSON: THE QUEST TO IMPROVE THE BUDGET SYSTEM Introduction Emerson can be considered as a cost-averse firm due to ...

BUDGET PROPOSAL

PROPOSED BUDGET FOR TOWNSCAPE POLICE DEPARTMENT FOR THE FISCAL YEAR 2004-2005               This paper is prepared to explain Townscape City’s firm position on the three percent across the board budgetary increase. It also attempts to solve the problem on the four percent contractual raise as stipulated in the collective bargaining agreement and other important issues relevant to the City Police Department.             The revenue collected by the city government for this year is $59,200,405 which is 7.3 percent down from the previous year. The total expenditures reach to $65,298,178 which is 14.3 percent up from last year. This indicates that the city has experienced deficit. Based on the numerical data, public safety which includes police protection and fire protection claims the highest expenditures. It represents more than half of the general fund expenditure. To offset this deficit, it is a good option to cut the 4 percent contractual increase as stipulated in the collective bargaining agreement to 3 percent. This has no legal basis indeed but the city council can find a wise solution by arranging a meeting with the Labor Union to talk the matter and other concerns seriously so that a new agreement will be reached. I would suggest that the city government should offer a good bargain to these employees by assuring them of an increase in the next annual budget depending on the increase on the revenues.             Reduction in the expenditures of the Police Department will be in the administration section. Some special privileges and allowances will be cut temporarily until the city government can fully recover the deficit. Postponement on the hiring of new personnel for the Police Department should be temporarily implemented to reduce the expenses on salaries and wages. It is wise to utilize a portion of the funds in the training of the police officers, sergeants and other personnel to enhance their skills and be prepared physically and mentally to respond to all emergency calls. Important projects and programs on public safety must continue to provide better security to the people living in the city and to protect both public and private properties.             All these things should be properly delivered to the Police Department to clear any doubts regarding the proposed reduction in their budget. This action will prevent any form of mass demonstration that will mar the integrity of the city government of Townscape.     NOTE: The two spreadsheets that you recommend me to use for this paper             are not available in the Internet. In fact, I am not able to find the city   of Townscape in Illinois. The figures that I am using for this paper is       obtained from the city of Wheaton in Kane County, Illinois.                   DRAFT ON THE PROPOSED BUDGET                       Unstable economic and local market conditions largely affect the revenues collected by the City Government of Townscape for this year. Financial department reports an increase in the city’s expenditures resulting in a negative difference. The city council’s decision to hold the increase to three percent for the Police Budget is certainly justifiable. The city has to reduce its expenditures to compensate for the deficit and prioritize those departments that will provide immediate solutions to the primary problems of the city.             This decision considers important issues or problems relevant to the people and the city. Dilapidated buildings are truly dangerous and public safety is at risk. The city government has to spend more money to repair and upgrade these crumbling buildings to deliver better services to the people. This means that the budget for public works must be on the top priority to serve and accommodate the growing community. The other significant issue is the fund balance and cash reserve policies. These policies aim to enhance long-term financial planning and mitigate the risks associated with changes in revenues. The city has to set aside sufficient money for unexpected expenditures despite of less revenue.             The city council makes a compromise with the Police Department to put an end to the problem regarding the proposed three percent increase. The council assures the Police Department for an increase in their budget for the next annual city budget ( 2005-2006). The increase will depend on the revenues that will be collected by the city government. To realize this, the council has to review their policies regarding private investments. The council members have to cooperate with each other to design new policies and regulations which will be favorable to both foreign and domestic investors. It would be an advantage to implement well-adjusted regulations which will encourage the investors’ favorable decision of establishing businesses in Townscape. Private investors will help increase the revenues of the city and will provide great employment opportunities to the people. The city council must see to it that commercial regulations will benefit the generation of profit of private investments and consequently to the revenue generation of the city in such a way that the city council has to enhance the commercial security and the health and safety of the community.  Particular components of the city in ensuring the influx and consistency of investments are tenets of the council and that these have to be well-managed so to guarantee the agreed 4% raise in the next budgetary appropriation than continue to endure the 3% and sacrifice the supposed to be beneficial programs of Townscape.     .

BUDGET PROPOSAL

PROPOSED BUDGET FOR TOWNSCAPE POLICE DEPARTMENT FOR THE...

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