Budget Variances

Performance-based budgeting measures, reports, and factors the outcome of an agency or program into future budget allocations. Moreover, this approach to appropriations creates incentives for an agency or program to produce measurable results in order to justify spending. This type of budgeting is defined as an “allocation of funds to achieve programmatic goals and objectives as well as some indication or measurement of work, efficiency, and/or effectiveness” (Young 12). Performance-based budgeting originated in the 1940’s after World War II when Hoover’s administration faced debt that surpassed the nation’s gross domestic product. The Hoover Commission attempted to align spending decisions with expected performance by recommending a shift from the traditional emphasis of government inputs to outputs (GAO 1997). Performance-based budgeting was designed to reform budgeting practices to focus on the measurement and reporting of outcomes.

With the increasing ramification of economic changes and complex business functioning, each and every company has to implement budget variance analysis to identify the fluctuation in projected amount. In this report, Peyton Approved Company has been taken into consideration to evaluate the effectiveness of business functioning and plant’s operation in determined approach. It reviews the efficiencies and effectiveness of their plant’s operations. With the help of budget variance, it could be easily determined whether Peyton Approved Company has been performing its business throughout the time. Budget variance is the technique which is used by Peyton Approved Company to identify the fluctuation and variability in the set budget and implemented project. Budget variance is defined as differences between the actual amounts of expense incurred by Peyton Approved Company. It is evaluated that when Peyton Approved Company has positive cash flow in its planned budget. For instance, if amount of expenses incurred by company is less than its planned or estimated budget expenses then company has positive budget variance and vice-versa. This could be defined with the estimation of cost budget variance. The formula for the same has been given as below (Steffan, 2008).

A budget is an instrument used to help managers ensure that the resources used effectively and proficiently toward the goals of an organization. A budget projection can be made on a yearly base depending on previous year or existing one. They can further be broken down quarterly or monthly depending on it use. Generating a budget is complex undertaking, and for a budget to be effective the organization ought to follow it strictly. However, no matter how closely a business follows their guidelines there will always be some form of variances. The organization should expect a few variances and be able to work these discrepancies in any budget

The baseline I have set out for my budget worked very well for me in the past month, but this month there was a large kink in it. There were just a couple different kinds of variances I met when adding up the totals of my real spending this month. When I was analyzing my budget, I went through and determined if the budget variances I had were good or bad for my needs. Most of my budget variances were positive except for one major one. What I mean by this is a good budget variance signified to me an outcome that was better than I expected. This one large bad budget variance I had consisted within my doctor’s expenses budget. The reason I had such a large variance of almost one thousand one hundred dollars within my doctor’s expenses is because I had to have surgery on my shoulder, and that was the amount of the co-pay. Within my budget I set an amount for my gas, clothing, and dining out, but it varies from month to month. For

The federal budget deals with the funding for each fiscal year. This budget set spending limits to allocate funding for specific federal funding. The budget provides data on financing of the government, receipt and surplus for different periods. There is a degree of complication when it comes to the budget but the best way to understand it is to verify what’s in the budget. According to the authors, the budget can contain expenditure control which provide payments for goods and services, management resources is an area where the organizations develops resources and planning for future allocation” (Lee, Johnson and Joyce 2013, 187). The various agencies will have information showing the different allocation within their budget. Agencies such as the Office of Management and Budget and the Government Accountability Office provides data and analysis. For example, “these agencies help determine strengths and weaknesses of programs, and assist in allocating resources in the budgetary process” (Lee, Johnson and Joyce 2013, 187).

2) An organization's budget estimating process routinely misses the actual cost of a project by 25%. For the most recent project, the budget variance was a ridiculous 23%, but this must be considered common cause variance.

The plastic and cedar direct materials both had unfavorable flexible-budget variances. It is unfavorable because they under budgeted the cost of the direct materials they were going to purchase. This could have been caused by a sudden increase in the cost of buying the materials, or they switched suppliers and had to pay more. The cedar also had an unfavorable price and efficiency variance, while the plastic had an unfavorable efficiency variance. In order to improve this, they need to try to stay consistent with their suppliers so that there is less of a variance. They also need to watch market trends more to see whether people are wanting to buy bird houses, because if they are, then they should budget a higher number of units sold, or vice versa. The company also needs to be more efficient on how they use their materials. For example, the workers need to not use too much or too little cedar when making a bird house, or else

Traditional budgeting is important in planning, control and performance management since it is easier to set target and useful in decision-making process (Hannine, 2013). However, Neely, Sutcliff and Heyns (2001) assert that traditional budgeting prevents reactions to

Top-down budgeting is the preferred method of budgeting for government agencies and many organizations (Ljungham). The methodology of top-down budgeting is described in Towards a Metatheory of Budgeting, as “dominated by top members of the executive branch and the legislative branch” (Williams & Calabrese, 2011, 178). The methodology entrusts top members to make annual budgeting decisions for their organizations. In many instances, top members also use this time to set annual program or department goals and targets. Top members make these decisions without solicitation of input from bottom levels of an organization. This can result in operational and logistical constraints in the lower levels of an organization when plans are implemented (Williams & Calabrese, 2011). Additionally, it can serve as a source of frustration for staff when uninformed budgeting decisions create consequences. This is particularly true when staff is tasked with making things work in the aftermath of budgeting decisions, despite having clear or attainable goals and budgets. Like all budgeting methodologies, there are benefits and difficulties.

Almost all United States governments utilizes top-down budgeting. Every year, the Office of Management and Budgeting (OMB) sends a communication to their government agencies with instructions on how to budget for the coming year. In this 70 page document, top-down budgeting is required, and specific instructions are provided for how to manage this process and obtain the necessary information to make budgeting decisions. An example from this document states, “A top-down approach to planning, testing, and documenting internal control over financial reporting would start with the significant agency-wide financial reports and work back to the key processes, controls, and supporting documentation” (OMB). In this document, the senior management team responsible for making budget decisions is given the power to determine the scope of financial reporting, design and methodology. They are also given the flexibility to work with appropriate budgeting documents, as they see fit. In this way, the decision makers putting the budget together is given the permission to call upon other resources to make budget allocations. However, the decision makers may not have the resources to do so, or operate with limited information. As mentioned, top-down budgeting can be used as a way to manage the lower levels of the

This paper will be an exploration of what budgeting and forecasting are and how they are determined and why they need to be re-evaluated. Furthermore, the hope is to uncover some of the underlining causes that drivers that trigger the re-evaluations in our organization as well as discover ways to mitigate those factors.

Budgeting is a key contributing factor in the measure of performance for a company. If companies setup budgets for each of their departments or organization as a whole and fail to remain within these budgets it could mean losses of profit for the company and their shareholders. Over time, companies have learned that some outside forces cannot be controlled and failing to neither plan nor have a course of action for when these events happen, has driven companies into a hole. Eventually as companies started to notice how certain events influenced their overall performance from a financial budget point of view they developed tolerances or ranges for budgets to measure performance better, this began the idea of flexible budgeting. Budgeting is a direct indictor of performance and while it has evolved there is still need to practice annual and flexible budgeting to truly measure performance, while also taking it a step further to provide organizations with more precise information that flexible budgeting may not provide.

Feb 25, 2011 sales tax decrease of .25% impacts reduced revenue, reduced operating appropriations, and higher economic spending

There are three budgetary approaches used in the modern world; line item and incremental budgeting, zero-based budgeting and performance-based budgeting (Hager, 2001).

International experience suggests that authorities should publish an explicit calendar every year to guide ministries, agencies and sub-national governments in terms of the revenue and expenditure ceilings as well as requirements and targets of the upcoming fiscal year in advanced. However, in Vietnam, the calendar always issued late, results in the delay of follow-up works. What is more, the budget ceilings have not been rigorously examined by the central government, meanwhile the sub-national governments treat the ceiling not serious enough, the real expenditure always higher than the ceilings, which made the calendar with no meanings. Besides, even if Vietnam have developed a medium-term framework, there are no forecasting budget for the next and third fiscal year, while the departmental planning is not consistent with the overall projections.