According to Williams and Calabrese, the term budget is ambiguous (Williams and Calabrese, 2013, 2). To me, the term ambiguous can have a negative connotation, meaning obscurity. Today, a myriad of budget theories exist; some divergent, while others homogeneous. Fiscal policy that creates public value is noteworthy. Admirable budgeting processes are transparent, efficient and exist to “eliminate deficits and control unethical legislator behavior” (Williams and Calabrese, 2013, 4). This paper aims to investigate the ambiguity & interpretive theory, as well as develop implications as I assess the correlation, similitudes, and disjoints amongst Williams’ and Calabrese’s suggested budget theories.
Ambiguity & Interpretive (AMB) theory is an example of an anti-analytic process doctrine that denotes early budget theory ideals of “goal setting, measurement, and reporting” (Williams and Calabrese, 2013, 5). I categorize this theory as positive and descriptive since it examines the interrelationships between various sovereign elements. Since this theory lacks formal structure and motive, it is similar to the Garbage Can theory (GC). The GC theory describes the decision making process within an organization that experiences high levels of ambiguity. Ultimately, both theories can be used to describe an organized anarchy. Decision outcomes are deliberated among independent networks, lacking specific problems, a systematic process and tangible optimal goals.
The Ambiguity & Interpretive theory is compatible with Rubin’s Real Time Budgeting (RTB) theory. RTB identifies five semi-autonomous “linked clusters: revenues, process, expenditures, balance, and implementation” (Williams and Calabrese, 2013, 11) that cooperate randomly. Obviously, values of clear communication are neglected, leading to haphazard, inappropriate decision revelations and “real-time adjustments” (Williams and Calabrese, 2013, 12). This interaction affects the budgetary decision making process as well as player’s ability to make appropriate and timely decisions.
Comparably, an alternate prescriptive model of budgeting is the Zero Based Budgeting theory (ZBB), which offers budget techniques and suggestions. Mostly utilized in smaller organizations, ZBB is incompatible with AMB because it is hyper-analytic where efficiency and rationality are primary goals. Key decision makers determine budgetary decision packages based on the prior fiscal year’s statistics. Marginality theory proponents adopt a “means-to-ends” (Williams and Calabrese, 2013, 8) mentality, supporting control performance budgeting measures like line-item restrictions, budget reports and cost-benefit analysis. Like Goodnow, Buck and Cleveland, I am an advocate for a “complete budgetary process” that is rational and fair.
I attended the Saturday Lab 1 session discussing the Denison Specialty Hospital case study. In our session, we had a through discussion into the different budget terminology. I learned about the difference between accrual and cash accounting methods, which is based on the timing of when the revenue and expenses are recognized. I also learned about responsibility centers as an organizational unit under the supervision of a manager, who is responsible for its activities and results. In addition, the manager is accountable for the budget of the department that they head. Therefore, a centralized form of management in developing the budget because it makes easier to because the information for the department budget is located
Mikesell, J. L. (2010). Fiscal administration: Analysis and applications for the public sector (8th ed.: 2010 custom edition). Mason, OH: Cengage Learning
The Australian Budget is an annually published document which details the Federal Government's plans to affect the level of economic activity, resource allocation, and income distribution through the use of fiscal policy. It describes the framework which the government intends to follow during the next financial year which will result in the attainment of their objectives. The budget is a publication of the government's plans regarding the use of fiscal policy, and is published to parliament and the general public on “budget night”, so as to allow open dissemination about the status of public finances and to promote transparency in Australia's fiscal policy.
For government budgeting to be effective, the process that guides it must be an evolving one. As the government gets bigger, it will most likely destabilize the existing method. Therefore, it must change to keep pace with the demands and growth of the country. The process must be capable of handling the complexity of our nation and its multifaceted needs so it will always need revisions and restructuring to face these new challenges. Its ultimate goal must be to reinforce the government and strengthen the country.
Participative Budgeting is the situation in which budgets are designed and set after input from subordinate managers, instead of merely being imposed. The idea behind this sort of budgeting is to assign responsibility to subordinate managers and place a form of personal ownership on the final budget. Nearly two decades of management accounting research has resulted in equivocal findings on the consequences and effects of participative budgeting (Lindquist 1995). Participative budgeting certainly has various advantages, these include the transferral of information from subordinate to superior increased job satisfaction for the subordinate, budgetary responsibility and goal congruence. Its disadvantages include budgetary slack and negative motivation, however it is the conditions in which participative budgeting takes place determines whether the budgeting process is successful. The conditions are dependent on various factors such as the level of participation, level of subordinate influence, the extent to which budgetary slack takes place, volatility, job related information, and the complexity of the budget.
Unlike traditional budgets, zero-based budgeting requires the justification of each and every expense outlined in the budget. Zero based budget planning starts from the zero base line and each element of the budget is analyzed. Managers or department heads, if a government entity, will justify the reasoning behind their budget request. Most budgets are incremental which automatically increases the previous year’s budget. Depending on the review of the budget a department may or may not get a budget increase. This type of budget planning has both advantages and disadvantages but in the long run, if planned and properly conducted, will prove to be a more valuable way of preparing a budget. Businesses who have adopted the zero-based budget approach generally reported improvement and either saved money, improved services, or both (LaFaive, 2003).
Whatever type of budget we create, we need to take this fact into the consideration that the budget process is a multidimensional process. There are tools which enable us to make better financial decisions such as “financial statements, assessments of risk, time value of the money, macroeconomic
Activity Based Budgeting is an approach to the budgeting process that focuses on identifying the costs of activities that take place in each area of a business and in determining how those activities relate to one another. The above diagram lays down the link betwe...
Line item budgeting categorizes various expenses and places them in list format on a document for budgetary purposes. This type of budgeting is considered the heartbeat of budgeting due to the systematic method by which it controls revenue and expenses, this is made evident when Tyer and Willand (1992), pointed out “Statutory or administrative controls could be imposed on the transfer of funds from one-line item to another, or between broad categories of expenditure.” According to Schick (1971), “line item budgets were attractive to legislative officials because they did not focus explicit attention on substantive policy issues or choices.”
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
Lee, R.D., Johnson, R.W., & Joyce, P.G. (2008). Public budgeting systems (8th ed.). Massachusetts: Jones and Bartlett
Budgets are an essential component of our lives, from our personal expenses, to our businesses or organizations, to the way our governments work. From a very early age, my mother tried to teach me the importance of planning and strategizing, included in what had to do with our finances. As I grew older, and especially as I became a student living on a modest stipend, I had to perfect the art of budgeting. The most difficult tasks for me were always having real expectations of the actual money I had, deciding what was absolutely necessary versus what was luxury, and thinking about saving in a strategic way. This translates to the strategies we need and follow in our workplace, as well as the everyday decision-making processes of the governing bodies of our communities. As Rachel Siegel and Carol Yacht suggest, one of the most important aspects of budgeting is making sure that the goals that are set play in harmony with the behaviors that are adopted. (Siegel and Yacht, 2010)
‘Beyond Budgeting is the set of guiding principles that, if followed, will enable an organization to manage its performance and decentralize its decision making process without the need for traditional budgets. Its purpose is to enable the organization to meet the success factors of the information economy (e.g. being adaptive in unpredictable conditions).’
The primary purposes of the governmental budget are to legitimize public expenditures and to account for and control the usage of public resources. As budgets evolve, officials find that the annual budget should be used for planning, coordinating, and scheduling programs. Demands on municipalities force them to engage in establishing priorities and monitoring how well the priorities are achieved. It is no longer possible for a municipal government to do everything for everyone. A municipal government must prioritize the services that are mandatory, urgent, and that are done well. Resources must be aligned with strategies and citizen’s needs by allocating them over some time frame; usually twelve months – a fiscal year.
The national budget is the main instrument through which governments collect resources from the economy, in a sufficient and appropriate manner; and allocate and use those resources responsively, efficiently and effectively (Todorovic & Djordjevic, 2009). The work of public budget has increased extremely more complicated, abstruse and worrying (Hou, 2006, p.730).