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Management of
Information
Agencies

- Budgeting -
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What is Budget ?
Budgets are an element of an
organizations financial management.


Financial management addresses the
overall fiscal integrity of an organization
and is an ongoing process.

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What is Budget
a statement of allocated expenditure
and/or revenue, under specific
headings, for a chosen period.
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Planning and Budgeting
Process
Overall planning and budgeting process may be divided
into three stages:

Development of objectives for information unit
(planning)

Preparation of the budget (budgeting)

Monitoring of performance against budget (financial
reporting & accounting)






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Budgeting Basic
The fundamentals of a budget are:

It is prepared to cover a defined period.
It is approved in advance of the period to which
it refers.
The data used in its preparation are documented for
future reference.
Qualitative, quantitative and fiscal information are all
combined in the budget process.
It defines processes that are to be adopted in order
to ensure that the organizations goals.
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Budgeting Basic
Planning should be the first stage in the financial and
budgetary process.

In terms of terminology budgets may be variously
described by their type and method of preparation.

Budgeting based on preparation methods.

Budgeting based on type of expenditure.

Budgeting based on management input.
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Budgeting based on preparation
methods
Ranging from Line-Item to Zero Based Budgeting.


Many ways to prepared and presented the budgets.
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Budgeting based on type of
expenditure
Operating or revenue, budget represent the routine day
to day budgets which provide the authorization for general
expenditure.

Capital budgets represent funds for major, one-off,
purchases for which special rules apply.


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Budgeting based on
management input
Budgets may be directive or participatory;

Directive budget will be imposed by the information
managers management team.

Participatory budgets will require the information
unit to undertake the preparation.
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Budget Preparations
Although many types of budgets exist, most libraries
employ one of these following six types of budgets:

1) Line-Item Budgeting
2) Formula Budgeting
3) Program Budgeting
4) Performance Budgeting
5) Planning Programming Budgeting System
6) Zero Based Budgeting
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Line-Item Budget
The line-item budget represents the simplest and most
commonly used budgeting method.

It divides objects of expenditure into broad input
categories. For examples:

Salaries and wages
Materials and supplies
Equipment
Capital expenditure
Miscellaneous.
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Line-Item Budget
Line-item budgets facilitate low levels of detail for both
planning and cost control purposes.

Often, the accounting function of the parent organization
develops accounts and subaccounts on a company-wide
basis. In that case, the library uses the company
accounting scheme.
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Advantages of Line Item
Budgeting
Easy to prepare
Most are done by projecting current expenditures
to the next year, taking cost increase into account.

Easy to understand and justify
It can be shown that the allocated funds were
spent in the areas for which they were budgeted.
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Disadvantages of Line Item
Budgeting
No relationship between the budget request and the
objectives of the organization.
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Example Line Item Budgeting
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Formula Budget
Formula budget uses predetermined standards for
allocation of monetary resources.

Adopted by large library systems, e.g.: academic
library and state library for appropriating state funds.

After the criteria for budget requests have been
established, they can be applied across the
board to all units within the library system.
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Advantages of Formula Budget
Mechanical and easy to prepare.

Because of the formula budgets application to all
institutions in the political jurisdiction, there appears
to be justification for monies requested.

Governing bodies have a sense of equity, because
each institution in the system is measured against
the same criteria.

Fewer budgeting and planning skills are required to
prepare and administer a formal budget.
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Additional advantages of
Formula Budget
Facilitate inter-institutional comparison.

Facilitate comparisons from year to year.

Reduce paperwork in the budgeting process.

Eliminate extraneous details.

Provide a systematic, objective allocation techniques.

Connote mathematical infallibility.
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Weakness of Formula Budget
Another weakness results from the formula budgets
lack of identification with the parent organizations goals
and objectives.

Another weakness emanates from the unpredictable
nature of the budget since the formula is based on
variables outside the influence or control of the special
library.
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Example Formula Budget
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Program Budget
It was introduced by U.S. President Lyndon Johnson
over 30 years ago and has been used around the world.

The process is concerned with the organization's
activities or a program budget emphasizes the librarys
activities, so that money can be assigned to programs or
services provided.
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Program Budget
By its nature, a program budget focuses on the services
the library provides to its clients. Therefore, the program
budget more readily relates to overall organizational goals
and objectives.

Its attractiveness is further enhanced by its usefulness
when establishing priority for library programs relative to
the parent organization.
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Example of Program Budget
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Performance Budget
Performance budgets share characteristics with program
budgets, but performance budgets focus primarily on what
library staff members do or what functions they perform in
the librarys service complement.

Tasks rather than programs are highlighted. Among the
functions displayed within a performance budget are
technical services (i.e., cataloging, materials processing);
planning (budgeting, automation, employee selection,
interviewing, development; patron contact (circulation desk,
email & telephone contacts).
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Planning Programming Budgeting
System (PPBS)
PPBS was developed by Rand Corporation and
introduced to the Department of Defense by Robert
McNara in 1961.

President Lyndon Johnson directed all principle
government agencies to implement it, and in 1965 it was
being used by all of these agencies.
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Continue
The PPBS approach combines the best of both program
budgeting and performance budgeting.

The importance is on planning.

It begins with the establishing of goals, objectives and
controlling aspect of measurement.

It emphasizes the cost of accomplishing goals set by the
library.

This approach forces one to think of the budget as a tool
to allocate resources rather than to control operations.
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Steps in PBBS
Identifying the objectives of the library.

Presenting alternatives ways to achieves those
objectives with cost benefit ratios presented for each.

Identifying the activities that are necessary for each
program.

Evaluating the result so that correctives actions can be
taken.

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One of the most complex methods of long budgeting,
incorporating many elements of long range planning
techniques.

When fully operational, allows information manager to
make better decision on resource allocations by developing
an overview of goals at the organizational level, rather than
unit level.

The final budget will show the alternative methods,
together with their costs.
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Final Stage of PBBS
The developments of measure that allow the
achievement against objectives to be determine.

The implementation of the selected program.

The measurement of performance.

The evaluation of the programs effectiveness
against the standards defined during the budget
development
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Advantages of PPBS
Attempts to link planning and budgeting
Weaknesses of PBBS
Requires strong central management, agreement on
what constitute a program, and consensus on the
appropriate outcomes.

Too often, costs are assigned to individual programs
that are unrelated to the programs activities.
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Example of PPBS
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Zero-Based Budget (ZBB)
ZBB focuses its activities on answering two basic
questions;

Are the current activities efficient and effectives?

Should current activities be eliminated or reduced to
fund higher-priority new programs or to reduce the
current budgets?
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Zero-based budgeting shifts the emphasis from
comparing present performance and/or programs to the
past or to the current activity. Rather, zero-based
budgeting requires that a clean slate be the starting
point for budget development.

Therefore, the emphasis is on what will happen in the
future that corresponds to the goals and objectives of the
parent organization.
Zero-Based Budget (ZBB)
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This from scratch approach is viewed as an appropriate
instrument to rank library programs by cost/importance to
organizational goals and to identify and eliminate programs
that provide minimal value added (Zach 22). Once the value
enhancing activities are identified, then the attendant costs
are developed.

Accompanying zero-based budgeting is the concept of
decision packages, a method used to examine each
proposed program and rank its merits vis a vis the parent
organizations goals and objectives. Once the top ranking
programs are identified, a program budget model is typically
used to construct the resource details
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Advantages of Zero-Based
Budget
Users gain a much better understanding of their
organization through the preparation and review of the
decision packages than they would using other methods.

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Weakness of Zero-Based
Budget
As there is no budget history from previous year, it does
not recognize that some commitments are continuing and
cannot be altered in the short run.

Is considered an all or nothing proposition.

Consumes incredible amounts of time and generates
massive volumes of paperwork, and it is frequently difficult
to gain agreement on the priorities.

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Example of ZBB
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Accounting
Describes the processes involved in the measurement
and recording of financial information and its
subsequent communication and interpretation as
background to decision-making within the organization
at all levels.
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Types of Accounting
1. Financial accounting
record the transactions of the organization with third parties
(staff, suppliers, and customers)

2. Cost accounting
record the internal activities of the organization
process of establishing the cost in money terms of the activity
or process being reviewed.

3. Management accounting
process of combining financial and cost accounting that
provides the complete picture of the financial state of the
organization.
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