Free Essay Example: Budgeting

Budgeting is a process that involves future planning of profitability as it is the crucial objective of any organization. Organizations must implement ways that are used to deal with the uncertainty that might arise in the course of work. Any company that fails to plan for a budget may, however, deal with any future risk by default and thus reacts when the event emerges. Organizations and businesses have learned to develop a blueprint of actions that allow the firm to deal with unforeseen circumstances occurs.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

The budget, therefore, directs the management on operational activities for the period to come, forces the administration to anticipate results that may occur, and be able to handle the situation with smoothness in addition to the motivation of staff to goal achievement. The budget also provides room for individual evaluation in addition to describing the assumption of the management relating to the economic state, and plans for deleting, adding, and product line changing.

Review planning

In the creation of a budget, it is essential to consider the sources of income and taking into account future and current expenses to meet an individual financial objective. The significant role of planning in budgeting is to save for the organisation after all the allocation for future spending is done. All planning in budgeting is aimed at making ends to meet. Small organisations, family and individuals plan for their budget in a much simpler way due to reduced complexity and the amount involved, for instance, all inflow resources are identified while the outflow resources are then planned for. In individual and family level, budgeting can be restricted due to the scarce in inflow resources a critical point referred to as the budget constraint.

Right budgeting strategies ensure management that is successful by allowing it to know its expenditure while investing in saving which later act as future security. By planning, balance of spending is checked avoiding instance of overspending or underspending due to the tightness it may possess. In preparation, the management should consider drawing down all the income from investment, assess all the requirement of the firm currently and future projections while making sure to address all the outstanding debts in addition to the non-essential expenses including restaurant trips and gifts. The resources to be saved are weighed from all the costs that are later deducted from the total inflow hence the firm can be able to project its profits in future.

Budgeting, programing, planning and execution (PPBE)

All the processes by with a budget do the allocation of its resources yearly with the aim of funding the requirement of the business can be referred to like the budgeting execution. The PPBE is a decision-making structure on development, strategy, policy and accomplishment of anticipated goals.

Background

The planning, programming, budgeting and execution is a decision-making structure for defence and military department established by McNamara Robert early in 1960s and allows for submission of the program request also referred to as the memorandum objective that takes five years with an estimate of the budget of the five years. The PPBE processes fall within the internal methodology of allocation of resources in the defence department in accomplishment of the department objective. In execution of the budget, the primary output in the Programing, planning, implementation and budgeting is the budget of defence that is submitted to the president budget and later to the congress. The critical role of the process is provision of optimal forces mix, support and equipment to different combat commanders for attainment of the mission within established constraints.

The framework of the process basically is to allow and provide a mechanism for making decision and also providing opportunities for future while re-examining the decisions in relation to the environment existing. All decisions that are made in each phase of the process are systematically sequential but small changes allowing integration of budgeting and programming phase were established in 2011 allowing submission, documentation of budget to run parallel hence ensuring coordination in making decisions. Other substantive changes further were made in 2003 among them is the changing from "programming, planning and budgeting system" to "planning, programming, budgeting and execution" to emphasis more on execution of budget to assess the department of defence by comparing its expectations with the accomplishments made.

Components of the PPBE

Planning involves resource allocation, a step that is fulfilled by nearly parallel actions of military and civilian side in participation in combatant commanders and services. It is the first step in resources allocation in the defence department and begins once the "national security strategy" is insured by the Security Council. The first action in planning involves reviewing both previous and current strategic guidance to examine evolution change and capabilities in military policy and strategy. The stage also consists of analyzing and evaluating the defence strategy that provides comprehensive examination result of possible threats, posture readiness, infrastructure, modernization programs, and intelligence.

Programing allow for the allocation of resources for mission fulfilment in the department of military and agency of defence. In this phase decisions made in planning are translated from documents and congressional guidance into allocations of resources requirement including funds, forces and personnel. This process is accomplished only through a systematic approval and review of personal resources and objectives in terms of finance for a period of five years. The process provides an idea of current decision on future defence status. The director of OSD has the responsibility of coordinating the programming process, and for these reasons he/she is considered as an official leader in the process.

Budgeting is the second last component of PPBE and involves reviewing specific aspects in a budget request, in accomplishing these, funding policy, creative pricing, work phasing (acquisition programs) and budget execution efficiency are employed. Examiners of the budget from the OMB are involved in the review of the process to highlight the necessity of defence budget being submitted for a second review by the USD and finally prepare a budgetary draft for the category in the study.

Execution and review involve assessing how appropriations available currently are being expended and obligated. The comparison of department of defence promises on what to do and the accomplishment is one of the most significant functions of the review. The review may note down recommendations on resources adjustment to ensure that the objective of the departments are accomplished and to an extent restructure the programs set to achieve the set goals.

Advantages

The PPBE fully comply with the social democratic rights as it is rooted firmly on the vital army principles that are centred to wellbeing of individuals. They employ the use of rule that governs the land hence are very acceptable in the society where rules are subject but not individuals. To be able to exercise citizens' democracy, military organization should be professionalized to be able to deal with complexity in the security policy and be able to defend the nation in expert ways. For this reason, the PPBE must be transparent in all decisions it makes and every allocation must be justified by any inquiry.

Monetary value plays a critical role in every society, especially with the increase in life expectancy. A community needs to save for future use, and the PPBE provides the basis for expressing and evaluating monetary value terms. By doing these, the process connects the defence organization with economy reality that further translates into a budget.

The PPBE is a mission-oriented process that enables the defence system to plan and be aware of their outcome. In addition to providing means to achieve, the department offers transparent decisions that allow the organization accept unpredictable events that may arise and by this, individuals are aware of what needs to be delivered in any mission.

The process provides transformation strategy in simple ways for the improvement of cost estimation, synthetic indicators improvement and reporting tools improvement (optimization). Thus the optimization process is used to improve the defence system response capabilities for the purpose of quickly settling the options and emergency application of unplanned constraints.

Disadvantages

The PPBE structure is a complex process that proves hard to understand owing with its tendency of growing into an even bigger system. With this kind of expansion, it creates flaws in every aspect that do not reside only in the order but instead displayed in complexity in present environments.

The PPBE is a delicate process of playing cards in that; its functionality depends heavily on functioning of components and rougher systems. The complexity of the system further delays the execution process as a single setback results in overall circuit delay increasing the problems also.

Despite the critical role it plays in seeing the defence department is succeeding, its legislation possess a significant problem as it should be in line with the laws of the land something that is proving to be challenging to cope with. With the current dynamic environment, control over monetary issues is becoming increasingly difficult especially when the gap in legislation needs filling.

Performance-based budgeting

The type of budget reflects how input resources are acquired and how outflow service in an organization affects its performance. The critical role of this is to identify the overall score relative to the performance-oriented objectives for highlighted outcomes. The budget is utilized mostly by agencies and government institution to link between the outcome and taxpayer funds.

Background

Budget based on performance gained effect in the early 1990s and later fell in its impact on the great recession era. However, the decision-making process has retaken effect although with mixed results. The method uses the idea of performance in the past to assess if a particular budget of program expense is worthy. The "national conference of state legislation" suggests that accountability is the basis for decision making in performance-based budgeting.

Components of budget based on performance

Information system performance entirely depends on the input-output theoretical model in support of business and organizational effectiveness. The system is based on a three-dimensional network of efficiency in information, output dimension and the service performance. These are the key ways that the processes employ to see that the outcome of the mission is achieved.

The result and outcome is a crucial element in the preparation of the budget hence reliable information needed for the implementation may be required. The outcome of a mission can be any form of system aimed at prioritization, identification and measuring of attributes for outcome accounting. Outcome theory relies basically on all technical principles developed by the management in its role of implementing a performance-based budget.

Advantages of program-based budgets

The budgets are directed at discovering areas to be improved. The performance budget enables the institutions to determine whatever is working and what is not working and by doing these, the outcome is thus realized. Funds are allocated on specific goals that are directed to previous performance hence reducing the risks of overspending on unforeseen events.