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Security Management
home page > Unit 11: budgeting
Types of budgets (continued)
- Program budgets:
similar to performance ones, but are more focused on future. Often require cost-benefit analyses, give total cost for a particular program and link objectives and performance measurement. They focus more on the activity than on detailing costs. Try to integrate all aspects of a particular program into one budget. Major strength: focuses on what's to be accomplished. However, it can provide too much detail and complexity. May be rejected if they are seen as an all-or-nothing proposition. - Lump-sum budget:
focus more on providing resources than on financial details. Give resources to a department or agency at a specific level, then its managers must decide how to allocate them. It gives managers flexibility, and makes them accountable. However, it doesn't give much information. - Zero-based budgets:
Started with federal government, was particularly practiced under President Carter. It gives no annual base to a project: managers must justify why they need money, and forces them to prioritize. It requires scrutiny of past practices and the new activities. Must think in terms of consequences. it is a bottoms-up process. However, it was not well received by a lot of traditional programs, especially ones that can't really be defended any more. It also may be impossible to realistically begin with a zero base each year.
New budgeting paradigms
there are many problems
with conventional budget processes:
- they only deal with a single year, so they're not good for long-term planning.
- versions such as the line-item use only incremental decision making
- often preserve old decisions, don't fully re-examine them.
- emphasize control over money without really looking at how the money is being spent in terms of achieving goals
- or, budgets may be used oppressively, with managers focusing on mistakes
- some
managers simply focus on their own budgets when preparing budgets,
rather than the needs of the organization as a whole, and focus
on outputs, not processes.
- Has
been blamed as one of the reasons for the corporate scandals
such as Enron and WorldCom:
"One large survey of U.S. companies concluded that managers either did not accept the budgetary targets and opted to beat the system, or they felt pressured to achieve the targets at any cost. This pressure is squeezing the life and spirit out of many organizations and their people. It's the mentality that says, 'Do what I say or your future is at risk.' It is driven by greed and a need for instant gratification and immediate results. This was evident at both Enron and WorldCom. The WorldCom culture, say those who worked there, was all about living up to [CEO] Bernard Ebbers's demands. 'You would have a budget, and he would mandate that you had to be 2 percent under budget. Nothing else was acceptable.'" -- Beyond Budgeting - traditional
budget emphasis is on control, "with a centralized
force emphasizing coercion rather than coordination, focusing
on cost controls rather than on creating value, which in turn
stifles initiative and keeps the planning and execution processes
separate."
- top down: from CEO to line level who must execute
- no longer consistent with decentralized organizational styles that give more power and autonomy to line managers. Inherent conflicts result.