Essay on "Public Administration Budgeting an Important Stride"

Essay 5 pages (1698 words) Sources: 5

[EXCERPT] . . . .

Public Administration

Budgeting

An important stride in calculating expenditures and in the end profit is by generating a budget for an organization. With ever tightening profit margins, every department in an organization needs to keep careful track of their expenses. Some of the things that are often incorporated into an annual budget are salaries, utilities, office costs, repairs, and maintenance. Without doubt, situations occur that may require purchases that exceed budgeted totals. There are also times when income falls short of the predicted amount. These situations often make the organization to revise the budget every so often. A budget is usually put together for a one year time period. Logging departmental discrepancies from the budget can be an effectual management tool (Fuller, 2010).

In order to create an annual budget, staff should sit down with the organization's financial manager in order to create a budget for every department's operational plan. To generate the budget it is important to consider the work that takes place within each operational plan. Included in this are salaries and benefits. Once each department has put together a budget, the financial manager then put everything into one organizational budget. Any similar activities across departments are collapsed into one line item. Line objects often include staff, travel, supplies, consultants, meetings, and telephone and postage costs. Another area that must be included in the budget are the general and administrative costs of running the organization, such as utilities, the receptionist's and other support staff's salaries and benefits, the cost of an annual audit, rent and web site hosting fees (The Seven Components of Organizational Sustainability, 2008).

Once a budget is put together, management should figure out sources of revenue in order to meet the budgetary needs. Some finances may already be on hand from existing grants or contracts while additional funds will need to be raised. The next step is to identify where the organization will get these additional funds. It is important not to spend above the organization's means. Cut backs on operational plans that do not have a source of funding will usually take place (The Seven Components of Organizational Sustainability, 2008).

A flexible budget system is a sensible advance towards cost management. Even though the concepts and mathematics of a flexible budgeting system are usually straightforward, put into practice the system is not. This complexity is often caused by the pure volume of relationships that must be clear and then modeled and the unwillingness of department managers to buy into the theory. Department education and training is the first step in system implementation. Service departments such as finance have to focus on serving their customers which includes all of the operating departments. Without a commitment to education, operating departments may be reluctant to accept the assumptions and the system will be doomed from the start (Lohrmann, 2010).

Promising to supply training is easy, but following through on this promise is sometimes difficult. Many finance experts gravitate toward technological issues, such as the ability of software packages or the clarity of modeling relationships, while putting very little importance on the qualitative features of a system. By allowing for both qualitative and quantitative needs in a system's execution, long-term achievement is more easily realizes. Department managers will welcome opportunities to improve their operations and increase their financial expertise if the requisite tools are explained to them and they are part of the process (Lohrmann, 2010).

Revenue producing departments along with many support departments have products or activity measures that are well identified in the revenue budgeting process. Yet, for administrative departments, some form of changeable activity measure should be put into place if possible. Administrative departments are usually fixed within expected operating assortments. Establishing their routine as variable, even in a partial sense, preserves the perception of equality. In many circumstances, the political advantage of defining logical variable activity measures during system start up without doubt outweighs any erroneousness that may result from flexing volumes in a permanent department. Because few activity measures simultaneously track revenues, staffing, and other expenses perfectly, implementing a flexible budgeting system should not be delayed until the perfect activity measure or measures are found for each department. This halt may generate a permanent holdup (Lohrmann, 2010).

Although it is easy to say that all costs are either fixed or variable relative to activity levels, it is not as easy to classify each expense into a particular category. A great amount of time, effort, and money can be spent on figuring out cost behavior. Initially, expenses are usually classified into two broad categories, staffing and non-staffing. A lot of effort is spent figuring out staffing variability associations because staffing dollars stand for the largest portion of most departments' budgets. Staffing analyses usually are more responsive and controversial, and therefore necessitate more effort. To figure out staffing variability, departments are often requested to categorize their employees into the groups (Lohrmann, 2010).

Businesses often prepare budgets in order to help keep better track of their money and see where it is being spent. While the whole idea of a budget is a great idea it does not guarantee that there won't be any problems with the budget. No matter how well equipped a budget is, many businesses find issues in the budget. Problems in the budget can be due to many factors, such as not allotting enough money to a particular part of the business or transposing numbers. No matter what the problems are they can be managed as long as one can recognize the potential problems before they get out of hand (How to recognize potential budgeting problems, 2010).

One main problem that can occur when preparing a budget is overemphasizing projections. This happens because people dream big and often think that their business will do a vast amount of business in a short amount of time. Most of the time this happens not because people are trying to intentionally mislead the investors, it happens because they want to see their business do well and realize these huge amounts of production. Another major problem with budgets are that businesses sometime forget about the taxes that they owe and prepare a budget based on money that they don't have. One thing that has to be watched for is the fact that the money from sales taxes and employee withholdings are not taken into a count on the balance sheets as holdings. These things should have a separate account for sales tax revenue so that they can be kept separate from sales revenue (How to recognize potential budgeting problems, 2010).

A good budget process should encompass organizational goals, allocate resources, provide feedback, and motivate employees. The budgetary process should be consistent by using budget manuals, budget forms, and official measures. The accomplishment of the budgeting process necessitates the collaboration of all levels within the organization. Without top management or operating management support, the budgeting process will be unsuccessful. Those people involved in budgeting must be properly trained and guided in the objectives, benefits, steps, and actions that are involved in the whole process. There should be adequate supervision (How to Prepare A Sound Budget Process. Six Steps in the Budgeting Process. Bottom-up vs. Top-down Budget Plans, 2010).

The research of a comprehensive budget usually starts with the probable volume of sales or services, which is a vital factor that determines the level of action for a period. In other cases, factory power, the supply of work, or the accessibility of raw materials could be the preventive factor to success. After sales are forecast, production costs and operating expenses can be estimated. The budgeting timeframe varies with the type of business, but it should be long enough to consist of complete cycles of season, production, inventory turnover, and financial activities. Other considerations are product or service to… READ MORE

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