The Importance Of Line Item Budgeting

A line item budget is often referred to as the most simplistic and common budgeting system used by organizations. A line item budget is a budget that contains line items of expenditures for analysis, authorization, and control. A line item budget usually contain expenditures such as office supplies, salaries, travel and utilities (Mckinney,2015). Line item budgeting is designed to simplify an organizations spending. It shortens the budgetary planning process because it is builds upon the organizations preceding fiscal budget. With line item budgeting, the organization creates an estimated budget by basing it on the organizations previous activities and spending habits. Furthermore, line item budgeting became a common form of budgeting after

This form of budgeting requires managers to review each function of the organization and analyze its expenditures and needs (Mckinney,2015). At the start of every new fiscal term, the organizations budget will zero out. With zero base budgeting, the organization thoroughly discuss and evaluate the organizations goal for that fiscal year. From there, the organization holds staff wide meetings to provide each department the chance to have an input and finding new solutions on reaching the newly established mission. Zero-base budgeting focuses on saving the organization money. Furthermore, “zero-base budgeting requires that managers defend every activity under their control before funds are allocated” (Mckinney,2015,p.405). Before allocating any funds, the organization reviews each department to determine if it is cost-effective or an unproductive activity (Callaghan,2014). Zero-base budgeting may be rigorous and meticulous, but this methods is about reducing an organizations wasteful spending and increasing its productivity. Additionally, it prevents the organization from unnecessarily increasing the budget every year. If zero-base budgeting is completed correctly an organization can have sudden results. For instance, during the 2008 recession, many companies had to reposition management and lay off thousands of employees. As a result, many companies began utilizing the zero-base budgeting method and began to receive increasing turn around rates. For example, private entities such as Xerox and Texas Instruments began utilizing zero-base budgeting. The organizations analyzed the budgets and eliminated wasteful spending. The end results were remarkable. In fact, both companies were able to receive a profit increase of about 60% (O’brien, 2010). Zero-base budgeting can be successful for any organization, if they are willing to put forth an