A budget is a financial and a quantitative statement of organization’s activities prepared before a given specific period of time. It gives policy makers financial information to help them in making strategic decisions. There are several types of budgets which include financial budgets, operating budgets zero base budgets and variable budgets. The operating budgets involves a statement that gives the financial plan for each responsibility center during the budget period and reflects operating activities involving revenues and expenses. Financial budgets on the other hand outlines how an organization is going to acquire its money and how it intends to use the acquired money (Barnat, 1996).
Variable budgets are the cost schedules that shows how each cost should vary as the level of output also varies. Zero base budgets are budgets that enable the organization to reconsider its priorities from start. It’s assumption is that the previous year’s budget is not a valid base from which to work with, therefore enabling the managers to review and justify their organizational activities to enable them to achieve their goals. (Barnat, 1996)
This research focuses on three types of budgets. These include the financial budget, the variable budget and the operating budget. The financial budget was obtained from the United States department of energy in the city of Los Angeles. The city covers an area of approximately 472 square miles. The area covered by streets in total was 6500 miles. The total population covered was 4million and the overall budget was $6.7 billion for the year 2011. The project was started to reduce the electrical energy consumption by 40%, to reduce the maintenance cost and to reduce the amount of carbon emission into the environment. In this case, a financial budget was used. The bureau of street lighting had to come up with a list of the expenditure and every detail on how exactly the money would be spent and how they would obtain the money to be used. The advantages of this budget include, enabling financial awareness in the organization. They provide details of the spending and the earnings of a given organization or business forum. This can then be used to deduce whether the firm has a positive financial standing or a negative one. This can also be used during an audit to detect whether some funds are being allocated to the wrong areas. Also, the budget can be used as a communication tool to show how the organization is operating internally and how the money is spent. The disadvantages include inaccuracy; most budgets are usually based on a set of assumptions that at times may be very far from the exact amount needed. Also it makes decision making very rigid irrespective on the type of decision (Johnson & Scholes, 1999).
The next budget type was obtained from the State of Alberta, Western North America. It has an estimated population of 4.1 Million people. This project was mainly designed for Edmonton and Calgary regions which have a population exceeding 1 million. They used the operative budget which was prepared by the Alberta transportation’s capital plan. The aims of the project were to build and repair roads, repair and construct bridges, and finally to support water, wastewater projects. From the year 2016, they have invested $9.3 billion to be used over the next five years to see the project taken to completion. According to (Johnson & Scholes, 1999), the advantage of this kind of a budget is that it enables the organization to manage the current expenses in easily. Since it reflects all the operational activities that occur in every given financial year, it enables one to view in a clearly all the expenditures and decide on what to cut down and what to add. Next, it enables the managers of an organization to project future expenses. One is able to go back in the previous year and examine the operating expenses that were catered for. For instance, in the Alberta project, after the first year will have ended, they will be able to look back and assess their budget thus enabling one to make forward projections. Finally, it facilitates accountability. One can be able to establish financial accountability by facilitating following of the stipulated goals. The disadvantages of this type of a budget are that it requires a lot of time to create and therefore is very time consuming. Also, it causes a lot of bureaucracy that at times may hinder progress in an organization.
The variable budget was obtained from Kenya, a country on the eastern side of Africa. It has a total population of approximately 40 million individuals. The project was the rehabilitation of the internally displaced persons following the 2007/8 post-election violence that saw most of the inhabitants get internally displaced. The main aim of the project was resettlement of the IDP’s and be able to find them a source of livelihood. A total sum of $ 12000million was allocated in the budget for this. The total number of the internally displaced persons was estimated to be at approximately 3600.Each displaced household was to receive $4000 to enable them to purchase land, construct their houses and obtain startup capital for their businesses.
The advantage of this type of a budget is that it enables the comparison between the total amount of money allocated for each duty and the exact figure that was actually used. This then allows for easy identification of any loopholes especially in cases of corruption. It also allows for budget motility and reallocation of funds to underperforming areas of the project to allow their progress. The disadvantages include failure to monitor the progress of the project, since the previous year’s budget is disregarded. Also, they create unnecessary competition for resources and unfair politics in an organization (Johnson & Scholes, 1999).
In conclusion, the type of budget selected largely depends on the organization’s aims and intentions. For one to come up with a good budget, they have to list their plans and select one that clearly covers all aspects of their projects. The common factors in the budgets used in the public sector include resource constraints, control by the government through grant settlements. The activities are generally determined politically and work under fixed budgets. Also, they are community oriented and their outputs usually subjective and qualitative (Porter, 1985).
Barnat R., 1996, Strategic Management; Formulation and implementation, Poland
Johnson G. and Scholes K., 1999, Exploring Corporate Strategy, Cengage learning
Porter M., 1985, Competitive Advantage, Cambridge
Budget 2016 Highlights. (n.d.). Retrieved May 13, 2016, from http://www.transportation.alberta.ca/5141.htm
City of Los Angeles – Bureau of Street Lighting. (n.d.). Retrieved May 13, 2016, from
The National Treasury. (n.d.). Retrieved May 13, 2016, from http://www.treasury.go.ke/