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Wildavsky (1978, p. 502) describes traditional budgeting as being both annual (repeated yearly) and incremental (departing marginally from the year before). This type of budgeting is conducted on a cash basis in current dollars and typically consists of line-items such as personnel or maintenance. Essentially, it is a financial plan outlining estimated expenditures in terms of specific items to be purchased and the funds needed to finance them over a specified period, usually one year (Babunakis, 1976).
The traditional budgeting system plays a key role in promoting accountability and transparency in government spending, ensuring that expenditures align with the original plans.
It also serves as the foundation for establishing financial accounting procedures and controls to meet accountability and compliance standards (Kenneth S. 1978). In contemporary times, traditional budgeting has evolved to serve as a tool for economic management and planning as well (Wildavsky, 1978).
Additionally, the stability of allocation in absolute and proportional terms, including marginal increases due to inflation or other factors, remains consistent from year to year in this type of budget.
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The primary objectives of this method are centralized financial control and accountability. Currently, many developing nations follow traditional budgeting systems rooted in 'classical rules' that prioritize centralization, vote accounting, the gross budget principle, annuality, and specification (Jones & Pendlebury, 1996, p.).
5). Despite criticisms of traditional budgets, one major flaw is using current year estimates as the basis for the next year's budget. Traditional budgets focus on inputs rather than outputs, limiting their ability to inform policy decisions and monitor performance. (Jones & Pendlebury, 1996)
Traditional budgeting has been deemed ineffective due to its failure to connect purpose with cost, making it a poor tool for economic decision-making.
Additionally, there is a lack of alignment between annual budgeting and long-term development plans, as incremental budgeting focuses on short-term goals and overlooks the long-term nature of government planning. This issue hinders developing countries from effectively allocating limited resources among competing needs and achieving their established objectives.
One weakness is that centralizing budget preparation and rigid departmental divisions hinder achieving national objectives and addressing conflicts between departments. Single-year budgeting and the incremental approach lead to wasteful spending at year-end and hinder proper examination of expenditures, impacting the economy. Performance is often based on spending rather than achieving objectives.
Finally, the separate budget process for recurrent and capital or routine and development expenditures may be arbitrary, impeding proper evaluation of services, their needs and their costs as a whole. In many developing countries, capital expenditure may be seen often erroneously, to be of greater developmental value than recurrent expenditure e. g. new buildings versus paying teachers or maintaining roads. However, the traditional budgeting system has benefits. It is simple, easy to control and it reduces conflicts. According to Aronson (1981, p.
99) The use of incremental budgeting ensures that local governments maintain legality, public trust, probity, financial responsibility, and solvency by following budgeting principles such as comprehensiveness, unity, accuracy, clarity, and publicity. According to Jones & Pendlebury (1996), incremental budgeting is crucial because many activities from previous years are either mandatory or essential for achieving organizational goals and need to continue annually.
They suggested focusing on changes from the previous year because those may be the only ones that can be controlled. According to Wildavsky (1984, p. 13), the budget can be likened to an iceberg, with the majority of it below the surface and beyond anyone's control. Many budget items are standard and automatically re-enacted each year unless they are specifically challenged. Another rationale for using incremental budgeting is that it deals with
Jones & Pendlebury (1996) emphasized the importance of incremental budgeting in addressing the complexity of the budgetary process. They pointed out that decision makers' limited knowledge and cognitive abilities necessitate aids to calculation. By focusing on new programs or changes in existing programs, the amount of information to be gathered and analyzed is restricted to what humans can effectively manage. Incremental budgeting also helps narrow the scope of potential disputes, thus minimizing conflicts within the process (Jones & Pendlebury, 1996).
They claimed that discussions about budget allocations are limited to minor adjustments when focusing on gradual changes. The majority of the yearly budget remains uncontested. Planning Programming Budgeting System (PPBS) originated in the private sector and was later introduced to public and non-profit organizations in the 1960s. Initially utilized by the US Department of Defense, President Johnson expanded its use to all Federal Government departments in 1965. Several state and local governments in the USA and UK also tested or implemented this system.
The new budgeting system is able to significantly enhance the efficiency of resource allocation, leading to increased benefits from government activities. This system includes comprehensive financial planning and management, with the evaluation of different methods of public service provision and decision-making utilizing advanced analytic techniques (Caldwell, K, 1978, p. 12). According to Caldwell, PPBS offers the chance to incorporate program budgeting and cost accounting into the planning and budgeting procedures.
When it comes to budgeting, few people pay attention to the program accounting requirements. The main goal of PPBS is to ensure that resources are used effectively to achieve overall objectives. PPBS is designed to assist management in making informed decisions about resource allocation for government objectives.
In discussing PPBS, it is important to differentiate between program structure and program analysis aimed at achieving these goals. The program structure serves as the foundation for connecting resources and activities to objectives, requiring a departure from the traditional organizational setup in order to bring together the necessary inputs. On the other hand, program analysis focuses on evaluating the costs and benefits of each program to facilitate decision-making (Jones & Pendlebury, 1996).
Colville (1989) has stated that PPBS may necessitate a sophisticated cost-benefit analysis or cost-effectiveness appraisal system to consider anticipated planned changes in activities. This implies that the evaluation of each program's results should encompass all positive impacts of the program. Therefore, the central idea of this approach is to prioritize program activities over departmental considerations in the planning and budgeting process.
In emphasizing outputs over inputs, PPBS focuses on measurable outcomes, as argued by Hofstede (1981, p. 205). However, measuring outputs in public sector and non-profit organizations poses significant challenges due to the difficulty in defining and measuring objectives, especially in service-oriented sectors like education, health, and environmental services.
Moreover, Jones and Pendlebury (1996, p. 77) suggest that even if needs are definable, they are seldom measurable and the success of activities in meeting these needs can only be assessed subjectively. Another critique is the ambiguity of objectives. According to Hofstede, as referenced by Jones and Pendlebury (1996, p. 77), implementing a PPBS system in such conditions would be a significant mistake in selecting Management Control Models.
According to Premchand (1983, p. 328), in situations where objectives are unclear and outputs cannot be measured, a 'political' control model is more appropriate. Politicians tend to set vague goals on purpose, as goals are seen more as political ends rather than technical means. Therefore, the objectives analyzed by PPBS techniques may not be considered the ultimate purposes. Jones and Pendlebury (1993, p. 75) also suggest that determining costs accurately is not as simple as it may appear.
Many activities serve multiple purposes, making it challenging to allocate costs to specific 'output categories.' For instance, a local authority's library service may cater to both educational and recreational needs of the community, making it difficult to determine cost allocation between the two. The authors suggest that for many public sector organizations, PPBS could be seen as just another sound technique in this regard.
The text discusses the challenges and limitations of implementing PPBS. Wildavsky, as cited by Jones and Pendlebury (1996, p. 77), F. Jablonsky and W. Dirsmith (1978, p. 215) assert that PPBS has consistently failed to influence governmental decisions according to its own principles. Jones and Pendlebury (1996, p. 78) argue that the failure of PPBS is not due to lack of data, measurement techniques, or training but rather a more fundamental deficiency.
Caldwell (1978) argues that the implementation of PPBS has faced challenges in many places due to misunderstandings, resistance to change, and a lack of consideration for practical realities. This has led to PPBS being seen as theoretically sound but operationally impractical for managing a government's finances. Jones and Pendlebury (1996) also suggest that PPBS may not be effective for public sector activities due to the mismatch between traditional planning approaches and cybernetic management control models.
Challenges of Traditional and Program Budgeting Systems. (2016, Jul 22). Retrieved from https://studymoose.com/traditional-budgeting-system-essay
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