44.312 Security Management

home page > Unit 11: budgeting

Objectives and purposes(continued)

Purposes include:

  • creating a process to properly manage finances.
    for example, promises of pensions are worthless if you don't create and manage a pension fund well.
  • planning
    "budgets are plans of action and should be the company's most useful planning document." Help achieve long-term goals.
  • providing needed resources
  • prioritizing
    They create preferences, "budgets explicitly state an organization's values and goals."
  • explanations
    they show what the organization uses, activities it performs, and profits it makes.

he budget is a tool to help manage the organization.

Types of budgets

Components:

  • capital budget
    covers estimating costs and savings from purchasing new equipment, including how it will affect productivity
  • operating budget
    looks at costs of goods or services produced on a departmental or product basis
  • non-production-operating budget
    departmental budgets for overhead areas such as HR, sales, and purchasing
  • project
    for onetime programs or ones involving long-term expenses

Types:

  • line-item:
    most familiar, Based on last year's budget, these give information on projected spending for a given item in the budget.
    They give explicit detail, and is relatively simple to understand. Uniform and comprehensive. Allows comparison of last year's spending with this year's. On the other They look just at costs, not a desired goal or outcome. May continue items from year to year simply because they are there.Limits managerial flexibility and emphasizes control (over the individual item).
  • performance-based:
    associated with public sector, the goal is to link spending decisions with expected performance that will result. Complex, requires planners identify tasks that have specific beginning and end. They give more detail and information about activities and programs than do line-item ones. However, they are difficult to administer. Time consuming to create and carry out. Also, many functions can't be measured in this way.

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