Budgeting is the process of generating a plan to spend funds. It is a management tool that warrants you to look into the future since creating this consumption plan permits you to determine in advance whether you will have adequate funds to execute the things purposed for. Budgeting approaches are the methods that determine how budgets are funded and allocated money. These approaches have different means of operation depending on their principles. One is based on the relationship between funding levels and the outcome expected. Simultaneously, the other starts with an assumption that budgets are zero and are implemented irrespective of the previous periods of spending.
Firstly, different budget approaches have dissimilarly impacted the development, implementation, and justification of programs. Performed based budget approach has the expenditure tied to the expected outcome, in which case it may revisit the previous programs (Minjire & Ogollah, 2017). By using performance criteria as a basis for funds allocation, the drivers of these programs have ensured efficiency and effectiveness in the execution of budgets. This is to achieve projected results that will maximize the allocation.
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On the other hand, the zero-based approach commences with an assumption that all budgets are nil and must be reconstructed from scratch. In this relation, each expense must be justified before it is included in the budget without considering how the same performed previously (Ibrahim, 2019a). Therefore, zero-based budgeting ensures that funds are systematically allocated, easily accommodating new programs.
Performance-based budgeting is a practice by institutions in ensuring that funds allocation is inclined with the projected results. It is a process that utilizes evidence to increase the issuance of money for schemes that work and away from those that do not (Erkutlu et al., 2017). Therefore, it focuses on the work and results expected, which continuously boosts the performance of programs.
A zero-based budget is a practice in which all costs should be justified for each brand new period. Budgets are then raised towards what is required for the period, even if each forecast is higher or lower than the previous one (Lubis et al., 2014). Hence better utilization of resources because funds are allocated on cost-benefit terms.
The performance-based budgeting approach states plainly the purpose and objectives for funds requirement. Additionally, it provides for excellent estimates of cost in distinguished departments. It will enable communities to allocate resources to diverse projects according to their significance (Trenovski & Nikolov, 2015). This feature approach will allow communities to focus on meeting their targets with lower funding because funds allocation will be flexible.
A zero-based budgeting approach can lower costs by ensuring that old and new expenses are kept in check. This will help a community dealing with decreased government funding or lower collection of revenue to stay afloat with the available resources (Ibrahim, 2017). Since this approach compels businesses to build new budgets, it will enable cost-cutting by shunning automatic budget increases and prioritizing the current needs to attend to.
A performance-based reform approach will enhance public expenditure efficiency and effectiveness by ensuring the allocation of funds aligns with the results born. On the other hand, this approach is easy to manipulate since departments can control figures to attain specific targets and receive funds (Pratolo et al., 2020). Finally, the zero-based reform approach creates a need to justify every expenditure. This keeps the drivers of these budgets in check because there must be a specific reason for every spending and forces the management stakeholders at all levels to actively participate in the process (Ibrahim, 2019b). However, it is time-consuming to build budgets from scratch, which may lead to personal bias in the managers' ranking of the managers' decisions.
Conclusively, budgeting estimates revenue plans expenditure and limits unplanned spending. Setting up a budget can be a taxing exercise, and so is selecting the suitable budgeting method. Budgeting approaches are essential tools for ensuring that funds are appropriately utilized in the public and private sectors. Budgets enable proper allocation of resources, and these approaches ensure that each organization settles for the one that best suits their nature operations.
References
Erkutlu, Harkan, V., Tanc, Sukran, G., & Kocyigit, Ceyhan, C. (2017). The Factors Used to Create Performance-Based Budgeting: A Research on Turkey. DOI : 10.5772/intechopen.68920
Ibrahim, M. (2018). Designing zero-based budgeting for public organizations. Problems and Perspectives in Management, 17(2), 323-333. doi:10.21511/ppm.17(2).2019.25
Ibrahim, M. (2017). Zero-based Budgeting is a Panacea to Fiscal Distress. Saudi Journal of Business and Management Studies, 2(10), 943-950. DOI: 10.21276/sjbms.2017.2.10.11
Lubis, A., Siregar, Hasan, S. & Fauzi, S. (2014). A Study on the Different Applications of Performance-Based Budget and Zero-Based Budget on Regional Task Force Units in North Sumatra . International Journal of Management Sciences and Business Research, 3(10), 2226-8235. http://www.ijmsbr.com/Volume%203%20Issue%2010%20Paper%207.pdf
Minjire, N., C. & Ogollah, K. (2017). Impact of Factors Affecting Programme Based Budgeting Performance in Government Organizations in Kenya. International Journal of Public Policy and Administration, 1(4), 37-62.
Pratolo, S., Sofyani, H., Anwar, M. & Ntim, Collins, G. (2020) Performance-based Budgeting Implementation in Higher Education Institutions: Determinants and Impact on Quality, Cogent Business & Management, Cogent Business & Management, 7(1) ,
https://doi.org/10.1080/23311975.2020.1786315
Trenoski, B. & Nikolov, M. (2015). Cost-Benefit Analysis of Performance Based Budgeting Implementation. CEA Journal of Economics. 7663 https://www.researchgate.net/publication/291830068
Pratolo, S., Sofyani, H., Anwar, M. & Ntim, Collins, G. (2020) Performance-based Budgeting Implementation in Higher Education Institutions: Determinants and Impact on Quality, Cogent Business & Management, Cogent Business & Management, 7(1) ,
https://doi.org/10.1080/23311975.2020.1786315
