Centralized budgeting versus decentralized budgeting

Centralized budgeting versus decentralized budgeting

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Centralized budgeting versus decentralized budgeting

Part I

The concept of centralization or decentralization is important and should be considered because it ultimately affects the effectiveness of the budget authority. Budgets represent the criminal justice organization’s financial roadmap. Centralized budget authority is a top-down approach where the process of budgeting is initiated and supervised by one central budgeting unit (R. D. Lee, 1981).

Centralized budgeting authority offers a number of advantages to the criminal justice organization and to others who practice it. Firstly, it minimizes misappropriations: when the budgeting authority is decentralized, there is high possibility for department heads to misappropriate funds. However, by having a centralized budgeting structure, the criminal justice organization is in a position to establish a central authority body that will account for resources spent in dubious ways and also prevent occurrence of such misappropriations.

Secondly, redundancies can be reduced when a centralized budgeting system is implemented. If each department of the criminal justice organization has its own independent budgeting structure, total amount of money and time spent is higher. However, by pulling all the budgeting efforts and resources into a central department, the organization can restructure the budgeting process thus minimizing expenditures.

Thirdly, interior competition can be reduced through centralized budgeting structure. If different levels within the organization have an independent budgeting structure, it means that these budgeting structures will have to depend on the same pool of resources from which they can draw funds. When this happens, the independent budget authorities may start viewing each other as competitors instead of viewing each other as departments with a common cause. Such infighting and unhealthy competition can lead to inefficiencies and portrays poor image of the organization. However, by centralizing the budget authority, the organization is in a position to reduce this unhealthy attitude of competition.

Income fluctuations can be accounted for through centralizing the budgeting authority. Different department levels within the organization may occasionally experience revenue fluctuations. Decentralized budgeting authorities may experience difficulties managing fluctuations especially if they are negative fluctuations. However, if the combined revenue streams from different department levels maintain a sustainable average, centralized budgeting system can assist each department by providing financial assistance required to get rid of temporary setbacks.

Decentralization budgeting may lead to duplication of financial responsibilities at each level that can be performed more effectively and efficiently in centralization budgeting. The above factors make centralization budgeting more suitable than decentralization budgeting.

Part II

Decentralization of budget authority in a criminal justice organization occurs when upper level management delegates part of its decision-making authority and responsibilities to lower management. Decentralization of budget authority may occur due to the organization’s expansion, or if the management wants to shoulder less of the organization’s operational burden. Decentralizing budget authority offers several potential advantages for the organization, though top management may find it difficult to relinquish control since it is accustomed to decision-making (Wilson, 2002).

First, decision-making efficiency improves greatly with decentralized budget system. A decentralized budget authority is able to quickly make decisions than a centralized budget structure. Heads of each decentralized budget authorities often can make decisions and formulate rules without the need of waiting for them to go up the chain of command, enabling the organization to react swiftly to situations requiring immediate attention.

Secondly, with decentralized budget authority the organization can prepare for emergencies. There are situations where the top management must be absent from the organization for a given period of time due to other types of emergencies. A decentralized budget authority offers a better chance that the criminal justice organization will maintain self-reliance since the employees and their supervisors have adapted to working autonomously.

Thirdly, decentralization relieves the burden of daily organization operations off the top management. When the top management delegates budgeting duties to others, this frees the management up to spend more time on strategic planning.

Decentralization empowers employees by making them have more independence to make decisions on their own, thus presenting them with a sense of importance. Giving the employees autonomy enables them to effectively use the experience and knowledge they have gained or to implement their own ideas. Empowering managers and employees by decentralizing budgeting gives them more satisfaction in their respective work.

Lastly, expenditure and revenue assignments in a centralized structure are often misaligned. In a decentralization budgeting structure, revenue responsibilities match expenditure responsibilities. Centralization budgeting there is a possibility of misalignment between expenditure and revenue assignments which weakens link between input resources and outcomes.

References

R. D. Lee, J. (1981). Centralization/Decentralization in State Government Budgeting. Public Budgeting Fin.,, 76-79.

Wilson, J. D. (2002). Models of Centralized and Decentralized Budgeting within Universities. East Lansing: Department of Economics, Michigan State University.