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Budgeting

Budgeting. Michael K. Mauws. A written estimate of anticipated revenues and expenses. Used for planning purposes. A Budget. Should be based on objectives (e.g., a new mountain bike) Should be realistic (e.g., don’t count on winning 649) Should be flexible (e.g., if tuition goes up?)

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Budgeting

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  1. Budgeting Michael K. Mauws

  2. A written estimate of anticipated revenuesand expenses. Used for planning purposes.

  3. A Budget... • Should be based on objectives (e.g., a new mountain bike) • Should be realistic (e.g., don’t count on winning 649) • Should be flexible (e.g., if tuition goes up?) • Should be prepared early • Should be easily understood

  4. Budget inflows... • School boards & administrative bodies • Ticket revenues • Memberships & activity fees • Concessions • Fundraising • Endowments • Grants

  5. Budget outflows… • Operations • Staffing • Supplies • Promotion & Publicity • Equipment • Maintenance • Capital outlays

  6. Learning objectives: • Types of budgets • Capital, equipment, operating • Methods of budgeting • Line-item, Formula Funding, ZBB, PPBES • The budgeting process • The five steps

  7. Types of budgets... • Capital Budget • Anticipated expenditures related to the acquisition, construction and renovation of major fixed assets, which is usually land and buildings • Equipment Budget • Anticipated expenditures related to the acquisition of fixed assets excluding land and buildings

  8. Types of budgets (cont’d)... • Operating Budget • Anticipated expenditures and revenues resulting from the day-to-day activities of the organization such as program delivery, provision of treatment, and product sales. • Whereas capital and equipment budgets may cover a period of several years, operating budgets are usually for a period of one year.

  9. Methods of budgeting... • Line-item or incremental budgeting • Formula funding • PPBES: Planning, Programming, Budgeting and Evaluation System. • ZBB: Zero-Based Budgeting

  10. Joe Student BUDGET

  11. Line-item budgeting... • Advantages • Simple • Quick • Allows for sharing of resources • Disadvantages • Ignores goals and objectives • Perpetuates the status quo

  12. Formula funding... • Calculates each budget line according to a formula based on key variables (e.g., enrollment, memberships) • Advantages • Simple, quick & flexible • Disadvantages • Ignores fixed costs and economies of scale • Overly dependent on estimates of key variables

  13. Formula funding based on enrollment... Enrollment……………………………… 24,000 28,000 Photocopying (0.25/student)…………… 6,000 7,000 Staffing (0.50/student)………….……... 12,000 14,000 Publicity (0.60/student)…………………. 14,400 16,800 Catalogues (0.80/student)………………. 19,200 22,400 Office supplies (0.10/student)………….. 2,400 2,800 Total……………………………………. 54,000 63,000

  14. P.P.B.E. System…. • Planning • Identify organizational goals and objectives (e.g., student accomplishments) • Programming • Identifying programs that could potentially contribute toward reaching those goals and objectives

  15. P.P.B.E. System (cont’d)…. • Budgeting • Allocating funds to the most promising of the programs identified • Evaluation • Evaluate performance of programs over previous year • Relate accomplishments to costs

  16. P.P.B.E. System (cont’d)…. • Advantages • Goal-oriented • Encourages change when necessary • Disadvantages • Time consuming (and therefore expensive) • Complex • Encourages political behavior

  17. Zero-based budgeting... • Requires justification for all expenditures • Advantages • Goal-oriented • Encourages change • Disadvantages • Time consuming (and therefore expensive) • Complex • Results in unnecessary reviews

  18. The budgeting process... • 1. Review organizational goals • 2. Analyze present & alternative programs • 3. Select programs to be offered • 4. Estimate total costs for each program • 5. Assemble final budget

  19. Ask yourself... • Do I know what a budget is and what it’s used for? • Do I know what the difference is between an operating, an equipment, and a capital budget? • Can I identify and explain four methods of budgeting? • Can I identify the 5 steps of budgeting?

  20. THE END

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