There is no denying the fact that the preparation and use of budgets is well thought-out to be an indispensable economical
discipline for nearly any system of government. Budgets obtain many
different forms and formats ranging from an individual’s plan for how to make their money last for the next week or month to large public sector documents running to thousands of pages with input from hundreds or thousands of people. Budgets may be used for different items – for cash flow, for income and
expenditure, for types of expenditure. In a hefty manuscript, a number of individual budgets may be combined into a greater final document; even though accountant’s think mostly of budgets in money terms, budgets can be prepared in other units – in hours of available labour, for case in point, or for provision of a scarce resource or commodity between assembly centres.
The principles of budgeting are based on the following concepts and conventions:
• to apportion scarce resources and focus them where they are most helpful
• to anticipate or envisage future income and expenditure
• to forecast future cash flows
• to sketch for the timing of income or expenditure
• to assist in assessing the feasibility of expenditure
• to lend a hand assessing the viability of projects
• to keep an eye on the performance of organisations, departments, divisions and individuals
• to manage costs
• to steer budget holders in their jobs
• to prop up accountability and transparency
• to assist investigation of performance and suggest improvements
The query arises for what period, and how regularly, should budgets be geared up, and interrelated to that, how often if at all should it be revised or “flexed”. Budget preparation is a major exercise and it is not of necessity easy to prepare budgets for many different periods, although computerisation and specialist budgeting software can make this much more feasible. For this reason it is not a good idea to have to prepare budgets too regularly. It might therefore be thought that it would be a good idea to prepare a budget for a longer term, perhaps in the manner of a five year plan. However, the longer the future period becomes, the more likely it is that the budget will be inaccurate. Over a period of more than 1-2 years, economic estimates tend to become little more than an educated guess. For a special purpose a particular period would be chosen – so for a two-year project a budget would be prepared for the whole period, usually sub-divided into shorter blocks. The most common period for on-going organisation for detailed budgeting is one year and obviously it makes sense for this to be related to the annual accounts cycle. For more detailed analysis and monitoring budgets will be prepared weekly or monthly and down to the level of units and individuals.