In Line Budget versus Performance-Based Budget - Article Example

? In line Budget Versus Performance-Based Budget s s Introduction A budget provides the financial blueprint of how the city is to be developed. Budgeting of money at public and private entities sees into effective and efficient control of operations of the entity (Chrisinger, 2010). The public process of budgeting goes through several hierarchical processes before implementation, during implementation and follow up processes, and evaluation after spending (Wolf, 2013). However, for private budgeting, the process is simple (Kamensky, 2013, a). In general, a public budget comprises of four setting. Firstly, a political factor allots the limited public resources to the social and economic needs. Secondly, it is a managerial and administrative factor as it strategises the various ways in which the public will be provided with their needs through setting appropriate programs and services, their costs, their evaluation and implementation methodologies (Bamishigbin, 2012). Thirdly, it is an economical factor as it determines the various ways the town shall engage in growth and development. Lastly, it is an accounting factor as it holds the town`s top executive accountable for the funds allocated to them by the government for expenditure (Blidesel, Popa, & Pop, n.d.). Every budget has two significant elements, capital and recurrent estimates. For the recurrent budget, it comprises of the recurrent revenues and expenditures (Bamishigbin, 2012). This is the segment of the city`s budget that is comprised of the budgeted cash for running the government operations and consumptions. Capital budget is the section of the city`s budget, which consists of capital receipt and expenditure. This is the capital translated into development programs and services to city dwellers (Blidesel, Popa, & Pop, n.d.). There are various forms of budget. For instance, line item budget is the traditional type of budget. Performance budgeting requires a performance as a measure of budget item. The programmed budget focuses on achievement of each program provided to the users (Bamishigbin, 2012). Zero budgeting determines the cost benefit; the value for money to be invested in a given activity before making decision. This paper discusses the problems associated with the old budgetary method employed in Jakarta City. It discusses the challenges the city leaders faces and it proposes solutions to the problems. With the adoption of the performance-based budget, the city can change the face of its budgeting process. The performance based budgeting will ensure the previous unclear funds allocation will show their allocation in budget. This is one way through which the city shifts from politicians’ dominance for the city`s benefit into an approachable, clear, and answerable public spending management mechanism. Problems at Jakarta City Budget The budgetary account of Jakarta City features constricted and comprehensive items of expenses. The budget items include items such as motor vehicles, clerical workers or realms of papers needed in the city`s agencies and they do not refer to the aim of spending (Bamishigbin, 2012). They use this as their basis from which the audit team will determine the city agencies’ compliance to the budget requirement. The city`s budgetary format is of the below form. Expenditure item salaries materials other expenses total Last year Current year Next year Problems Associated with this Budget The city`s board is unable to utilize 98 percent of the 2013 Jakarta city`s budget. The main reason behind this is difficulty in acquiring land for development, auctioning problem, government policies, and inadequate technology for facilitating electronic cataloguing to ensure timely service and good delivery. Consequently, the unused budget resulting from this is estimated will reach Rp 7.28 trillion, which is equivalent to 15 percent of 2014 proposed budget of Rp 50.1 trillions. The cited causes to increase in the budget include the new needs of infrastructure and innovation to the public service. The traditional budgetary system employed in Jakarta City is inflexible to the town`s emerging needs. The city leaders’ concentrate on numerical data and this withdraws them from visualising the dark side presented by economic realities. It therefore fails to give the leaders incentives to search opportunities available for the city`s grown and expansion. This fixes the city`s way of thinking and responding to the environment that is ever changing. This inflexibility, in the process of Jakarta City`s budgeting, also makes it hard to constantly update changes in the budget as economy changes. Consequently, this locks the top executives` way of thinking. Besides, the process of budgeting in the city consumes time (Blidesel, Popa, & Pop, n.d.). This affects the frequency of updating the budget during fiscal years. The activities involved in planning and preparing the Jakarta City`s budget need more time on activities with little significance to the growth of the town. For instance, it requires summoning of the city council. The budget is the forecast of the growth of any town and the traditional process of budgeting in the Jakarta City incorporate mayor and top executives in the budgeting steps. They end up consuming time, which they could have saved and utilised attending issues that are more important to the city. These top executives hold meeting, negotiations and discussions as a way of harmonising and considering every department in the planning of the budget. By the time the budget process is verified, it is out of date and little can be implemented. The measurement of the Jakarta City budgetary process is based on the past data, which makes the information unreliable. In fact, the Jakarta City`s budget is a reflection of realities from last year’s economy. This makes the aims, vision and objectives of the budget to conflict with those of the city. The top executives consumes a lot of time focussing on their past other than using the past information and pondering the future of the city. Moreover, the Jakarta City budget fails to link up with the Jakarta City`s strategies. The city does not execute strategy from the budget as they uses different measures of implementing. Besides, the Jakarta City conformance with the budget does not fit with the force need to ensure there is continuous growth. Lastly, the Jakarta City budgeting methods encourages propagation of unethical behaviours. The financial engineers in the city act as remotely controlled devices when deciding on how to budget by numbers. After budgeting, they transfer this into contracts with fixed performances. These forces the manager to act under pressure to deliver an outcome even in situations the outcome is unlike event. Consequently, the managers and the budgeters units to doctor the budget in a way it looks presentable but not implementable. Proposed Solution The Jakarta City`s budgeting process need to change from traditional to performance based budgeting process. They may decide to adopt performance-based approach from cities such as Baltimore. The performance budget will ensure every item of the budget measure against performance. The budgetary items will therefore be categorised into groups or functional units. The budgeting process, in the Jakarta City, call for variants especially in its performance and Jakarta City`s withdraws from city agencies in their process of developing budget. The city`s mayor can developed six priority outcomes; better school, safer streets, stronger neighbourhoods, growing economy, cleaner and healthier city, and innovative government (Chrisinger, 2010). Besides, the mayor and her/his senior leaders sets the spending parameters broadly and around each of the highlighted outcomes. The work of the mayor will be allocating resources to the result team and not the city agencies. The city`s top executives need to incorporated the members of the public in the process of budgeting. For instance, members of the public need consideration in each of the six-priority outcomes teams designated. Every team comprises of six members, chair and one person liaising the result team with the mayor`s office (Kamensky, 2013, a). The chair of the team is a member of the city`s budget office. Interestingly, the team can be set as a testing ground for the future leaders of the Jakarta City. Each of the team has the role of coming up with a budget proposal to address their outcome (Chrisinger, 2010). They set up goals that are achievable in the coming years and the processes of achieving them. They then develop a documented proposal made up of varied services that cut through different city agencies. Elementary calculation of cost and efficiency in every element of budget is needed before approving the budget. For instance, use of result team will reduces without increasing the funding of the budget. They will also take the budgeting load from the shoulder of the city`s top executives. This will allow the city`s top executives to involve in more demanding problems in the city. The result team investigates, evaluates, and recommends on the investment portfolio the city is to engage and the mix of services the city can fund to the city`s mayor and her top executives (Chrisinger, 2010). The result team can be meeting with city agencies and draws up recommended proposals (Kamensky, 2013, a). They ranks their proposals with priority, from the highly prioritized to low. Later, the result teams and the mayor hold a meeting, in presence of her top executives, to review the budget guidance before sending a copy of the proposed document to the city agencies. The outlined document has specific and measurable goals. For instance, in order to improve performance in schools the proposal document may propose drawing of cause-and-effect map. It concludes by listing city agency offered proposals on the ways to assess the budget. The city agency, on receiving the guiding proposal document, can prepare their budget and submits it to the result team (Chrisinger, 2010). Through a web-based tool, the city agency could reports their budget request at service-to-service levels but not as a whole unit. By the end of submission, the city agency will have submitted departmental budgets covering all services. The submission of city agencies` report is to the result team (Kamensky, 2013, a). The obtained results are very clear for a common citizen comprehension (Kamensky, 2013, a). For example, the depart of recreation and parts could reported on three programs that needed funding; regular recreational service, general recreational service, and special recreational services/ currently, it reports on twelve as shown below (Kamensky, 2013,a). Measures of performance for individual service and budgeting priorities aligned to budgeting priorities in the Evaluation body process. The office Evaluation body is small group that could be set to deal with performance related management responsibilities and ensures there is continual improvement in the quality of services provided by government offices at Jakarta City to its citizens (Chrisinger, 2010). Its role is to evaluate policies and procedures undertaken by the various departments in the city when delivering any kind of urban services, including the investigation of criminals (Kamensky, 2013, a). The Evaluation body staffs would be bestowed the responsibility of analysing the presented data and highlights the areas that need improvement. This ensures that the city`s agencies participant in particularised format of presentation of the data in order to maximise their accountability. Besides, the city`s agencies will be prepared to answer any question directed to him/her by mayor or any of the mayor`s cabinet during the process of Evaluation body, held after a specific time (Chrisinger, 2010). Moreover, the measures for performance of each service need to include reporting trends as the department submits the budget request. The result team reviews and rank the requests from city agencies. The result team hold meeting with the city agencies and they rank their funding requests according to necessity in each activity. They develop a spreadsheet of the associated cash in dollars and prepare a memo the mayor of the city recommending the portfolio to invest in and the expected outcomes from the portfolio at lowest margins, medium and maximum of its performance (Chrisinger, 2010). Later, the result team would sits down with the mayor and the mayor’s top executives to review on the memos. The mayor`s work would be deciding and the budget making procedures concludes. The city budgeting team compiles the various results from the result team`s memos. They present a complete budget to mayor and city`s top executives for the final meeting (Chrisinger, 2010). The mayor reviews the document again and signs. Afterwards, the budget committee avails the budget to public sites like internet. After approving the budget, the mayor follows up the implementation of every budget item. Significant of Performance Based Budgeting Consequently, this budgeting process shifts the budget and its implementation from the city agency-centric view to service-centric (Chrisinger, 2010). Evidence is the best role player in this budgeting process. This process of budgeting also shows a light on the effectiveness of individual deliverance of services. This city`s new budgeting process will bring some changes in certain areas. For instance, slicing down expenses where services were imported (Chrisinger, 2010). Services, which turned out to be ineffective like preventing violence among the young people, saw the exemption resources allocation. The city also can come up with new inventions, such as calling the health department and the fire department, with the purpose of minimising costs. References Bamishigbin, L. (2012). Budgeting and budgetary control. Retrieved from http://www.academia.edu/1746893/BUDGET_AND_BUDGETARY_CONTROL_IN_NIGERIA Blidesel, G. R., Popa, A. & Pop, A. (n.d.). budgetary and accounting experience in public sector-comparative study. Retrieved from http://kgk.uni-obuda.hu/system/files/BlidiselR_PopaA_PopA.pdf Chrisinger, J. (2010). Results from Baltimore`s Budget. Governing. Retrieved from http://www.governing.com/blogs/bfc/results-baltimore-budget.html Kamensky, J. M. (2013), a. Linking performance budgeting and analytics. Business Analytic Blog. Retrieved from https://www-304.ibm.com/connections/blogs/predictiveanalytics/entry/linking_performance_budgeting_and_analytics?lang=en_us Kamensky, J. M. (2013), b. How to make a budget: Lesson`s from Baltimore`s approach. Government Executives. Retrieved from http://www.govexec.com/excellence/promising-practices/2013/10/how-budget-lessons-baltimores-approach-budgeting/72269/ Rozner, S. & Gallagher, M. (2008). Intergrated financial management information system. Retrieved from http://pdf.usaid.gov/pdf_docs/PNADK595.pdf Wolf, P. (2013). Performance based budgeting needed in county and city hall. The Centre for Reinventing Government. Retrieved from http://reinventinggov.org/2013/09/27/performance-based-budgeting-needed-in-county-city-hall/ Read More