What is Programme Based Budgeting?
Budgeting, in simple terms, is the process of creating a plan on how to spend your money. Budgeting helps you to balance your expenses against your incomes. It helps you determine whether you have enough finance to do things you want and whether you will save anything from it. There are many types of budgets; Programme Budgets are just one of them. Before we delve into the basics of a programme based budgeting, let us begin with the benefits of traditional budgeting.
Importance of Budgeting
The importance of budgeting lies in fact, how well the budget has been planned, taking into account all the important aspects of it. Some of the benefits of budget preparation are listed below:
- Budgeting helps you to prioritize your spending
- A finance budget gives you more control over your money.
- An effectively planned budget process helps you to gauge what you can afford and what you can’t; at the end of a month, you know where your money went and what else can you afford if there are any savings.
- Adhering to a budget helps you to set aside a particular portion of the income for unexpected and emergency costs without compromising the main heads of expenditure.
- A well- planned approach for preparing performance and programme based budget helps you to eliminate unnecessary expenditures like penalties, late fees, and interests, which undoubtedly results in adding up some extra incomes in the future.
Programme Based Budgeting
Programme based budgeting is an important budgeting tool that gives out all the budgetary information about every program that would be carried out with a budget. The programme based budgeting was first introduced by US President Lyndon Johnson in collaboration with the State Secretary of Defense, Robert S McNamara, in 1949. The system was then called PPBS or the Planning, Programming, and Budgeting System.
The program-based approach of budgeting, as the name implies, is prepared to keep in mind the goals and objectives of a specific program or project. It takes into account the difference between the program’s funding levels and the expected results in that proposed program, along with other factors like raw materials costs, natural resources, staff costs, equipment, etc. The program-based budget provides detailed information about the program’s total cost and the revenues generated through the proposed program. It also helps in evaluating the program’s output and effectiveness through various performance metrics.
Benefits of Programme Based Budgeting
The various benefits of a program-based budget are listed below:
1. Project priorities
The Programme Based Budget is prepared specifically for a single project. Therefore, organizations can use it to determine the priorities of the said project effectively for which the process has been implemented.
2. Resource allocation
A Programme Based Budget can effectively monitor the allocation of various resources to a particular project and streamline those resources effectively to meet the purpose of the project. Organizations use this budget to gain a competitive advantage over others in terms of resource allocation and implementations.
3. Helps in cost reduction
A programme based budget keeps into account all the relevant information of a particular project for which it is prepared. Therefore, identifying the key areas where cost reduction can be made, and savings can be induced, become easier to determine by looking at the Programme Based Budget. The Programme Based Budget can also spot the areas where higher levels of funds are required to carry on the project work.
4. Adds accountability
The budget preparation also adds accountability to every project. There is a respective budget set for each project, and therefore, firm accountability can be set for every particular project through their performance analysis.
Among the various types of budgets, the performance budget and the programme based budget provides a detailed analysis of how well the budget is prepared specifically for a particular project. A performance budget evaluates the performance of different operations carried on within the organization and allocates the majority of the available resources to those operations that have the maximum contribution towards the organization’s better performance and well-being.
If both of these budget processes, performance budgeting, and programme budgeting, are applied effectively, they may bind the objectives, programs, and budgets of an organization together.