BUDGETING in Social Administration and Management of Social Services.

By:

Imran Ahmad SajidPh.D. Research Scholar, Department of Social Work, University of Peshawar, KPK, Pakistan.

Course Title: Social Management and Administration of Social Services. Course No. 719Credit Hours: 3 Date: March 11, 2011

Outline

A. What is a Budget?

B. Why do I need a Budget?

C. Different kinds of Budget

D. Methods of Budget

E. Budget Techniques

F. Budget Stages

G. Budget Limitations

H. Q/A and Discussion

A. What is Budget?DEFINITION • The word budget is derived from the Old French bougette

(“little bag”) [Britannica 2009].

as a Noun: • leather pouch, wallet, or pack ; also: its contents (Marriam

Dictionary). • Money for particular purpose: Total amount of money

allocated or needed for a particular purpose or period of time (Encarta 2009).

As a verb• Budget is planned spending: to plan the allocation

expenditure, or use of resources, especially money or time (Ibid).

• A Budget is a plan that outlines an organization's financial and operational goals.

To describe a little more deeply, • Budget is the forecast by a government of its

expenditures and revenues for a specific period of time.

•  In other terms, a budget is an organizational plan stated in monetary terms.

B. Why do I need a Budget ?

• In the midst of starting and running your organization, you may wonder why you need to stop and put together a budget.

• A properly prepared and updated organizational budget serves several purposes:

Source: Jean Murray (n.d.). Why Do I Need to Prepare a Business Budget? What is the Purpose of a Budget? In about.com Guide. Retrieved 08 March, 2011 from http://biztaxlaw.about.com/od/budgetingandfinance/f/whybudget.htm

1. Plan Start-up Needs for Your Organizational Plan The first purpose of a budget is to help you gather

information for your organizational plan, including all the items and expenses necessary for start-up.

You need to know what it will cost you to open your doors the first day of your organization.

This includes inventory (stock in hand), furniture and fixtures (objects in fixed position), computers and software, and, of course, the costs of finding and securing a location for your organization.

2. Work with a Lender You will probably need to borrow money from a

lender, donor, or from family and friends for start-up.

A budget shows your lender how much you need for start-up and what your cash flow situation will look like in the first three years of your organization.

A reasonable budget can increase your credibility with your lender.

3. Plan Your Spending Your budget can give you information about how

much you can spend each month and how much you can take out of your organization as a salary or draw to live on.

As you start out, you may not be able to take much, but you can see what the future looks like and you can plan for your living expenses as you get started.

4. Know Your Required Profit If you set up your budget on a "required profit"

basis, you can see how much money you need to make to meet all your expenses, including personal expenses.

A required profit budget starts with all the expenses you need to pay each month, leaving the required profit as the income number needed to make the budget balance.

C. DIFFERENT KINDS OF BUDGETS

• In addition to your main working budget – what you realistically expect to generate or raise, and how this will be spent – you can also have some “what if” budget options. “What if” budgets allow you to prepare for the unexpected – whether it is good or bad. Your “what if” budgets could include:1. Survival budget2. Guaranteed budget3. Optimal budget

• A survival budget. This is the minimum required in order for the organisation or project to survive and do useful work.

• A guaranteed budget. This is based on the income guaranteed at the time the budget is planned. Usually the “guarantees” are in the form of promises from donors. However, unexpected situations, such as a donor grant coming through very late, may make it necessary to switch to your survival budget.

• An optimal budget. This covers what you would like to do if you can raise additional money. Once extra money comes in or is promised, it becomes part of your working budget.

D. Methods of Budget

• There can be at least three methods by which budgets can be prepared by organizations:1. By objectives2. By activities3. By assistance provided.

Method 1: Budget by Objectives• This first method shows the full plan of the project –

the objectives, outputs and activities.• It is designed to give an overall picture of the project.

It contains: a narrative summary of the goal, objectives and

outputs that follow the agreed framework (Hierarchy) numbering system

a list of activities for each output (one line /row for each activity)

a budget estimate for each activity.

• This system requires a three level system for budget codes and therefore a more complex accounting system.

1. BUDGET BY OBJECTIVESNumber Narrative Detail Budget (Rs)

GOAL

To enable women victims of injustice and violence to obtain fair and just treatment within the legal system; and to create a just and democratic legal system through advocacy for law reform and improved treatment of women by legal authorities.  

  LEGAL AID  

Objective 1To provide legal assistance and counseling for 100 women victims of injustice and violence in KPK by the end of January 2012  

Output 1By the end of Jan 201, 15% of women who have sought legal assistance from NGO obtain a court decision in their favour.  

Activity No Activity  

1.1.1Provide direct and indirect consultation and counselling on legal rights for approximately 100 women victims of injustice or domestic or other forms of violence.

10,000,000

1.1.2 Provide litigation services to 40 women (take 40 cases of court) who request legal assistance. 31,000,000

1.1.3 Advocacy of legal bodies regarding specific criminal cases being handled by NGO. 12,580,000

1.1.4Set up and maintain a database to monitor the progress of all cases handled by NGO and evaluate outcomes every six months.

500,000

Output 2

By the end of Jan 2012, 100 Women victims of injustice and domestic violence know their legal rights and legal procedures and are able to help other similar victims to seek assistance.  

Activity No Activity  

1.2.1

Conduct monthly empowerment meetings with NGO Partners (clients and ex clients) to share experiences, continue education on gender and the law and women's legal rights, and encourage Partners o share this informaion with their communities.

13,400,000

  TOTAL FOR OBJECTIVE ONE 67,480,000

Method 2: Budget by Activities• This method is a simplified version of method

one but contains only objectives and activities• The Outputs is removed and all activities under

one objective are listed under that objective. • This system requires a simplified numbering

system (only two levels) and therefore a simplified accounting system.

2. BUDGET BY ACTIVITIESNumber Narrative Detail Budget (Rs)

GOAL

To enable women victims of injustice and violence to obtain fair and just treament within the legal system; and to creae a jus and democraice legal sysem through adocacy for law reform and improved treatment of women by legal authorities.  

LEGAL AID  

Objective 1To provide legal assistance and counselling for 100 women victims of injustice and violence in KPK by the end of January 2012  

Activity No Activity

1.1

Provide direct and indirect consultation and counselling on legal rights for approximately 100 women victims of injustice or domestic or other forms of violence.          10,000,000 

1.2Provide litigation services to 40 women (take 40 cases o court) who request legal assistance.          31,000,000 

1.3 Advocacy o legal bodies regarding specific criminal cases being handled by NGO.          12,580,000 

1.4Set up and maintain a deabase to monitor the progress of all cases handled by NGO and evaluate outcomes every six months.               500,000 

1.5

Conduct monthly empowerment meetings with NGO Partners (clients and ex clients) to share experiences, continue education on gender and the law and women's legal rights, and encourage Partners o share this information with their communities.          13,400,000 

TOTAL FOR OBJECTIVE ONE 67,480,000

Method 3: Budget by Assistance• This method lists projected spending as

individual line items that relate specifically to the type of assistance provided e.g, staffing, technical support, goods, equipment, training, etc.

• It is also called Recurrent Cost Budget, bcz, this cost repeat every year.

3. BUDGET BY ACTIVITIESNumber Narrative Detail Budget Total

Coding No Adminisration - general 1.1 Accounting and audit fees 2600 1.2 Bank fee & charges 250 1.3 Equipment - rapairs and maintenance 2500 1.4 General office exps - stationery, postage, printing 2800 1.5 Registration fees and subscriptions 50 1.6 Rent and utilities (electricity and water0 15480 1.7 Sundries (petty cash, misc) 1000 1.8 Travel expenses - general 2000 26680

Staffing 2.1 Salarries and wages 61000 2.2 National Provident Fund 3000 2.3 Accident Compensation Board 600 2.4 Training 3000 2.5 Volunteer Resource Allowance 3800 2.6 General amenities 500 71900

Communications 3.1 Communications-electronics eg. Phone, fax, internet. 7000 3.2 Newsletter 1920 3.3 Advertising-radio, TV, Newspaper 3800 3.4 Development of Website PSC 3000 3.5 PSC Contract -public awareness materials 3700 19420

Fundraising 4.1 Human Rights Day Breakfast Fundraiser expenses 1500 4.2 International Day for Familis Fundraiser expenses 1500 4.3 Others 1500 4500

Education and awareness workshops 5.1 Workshop Peshawar, KPK 5125 5.2 Workshop, Islamabad 5125 5.3 Workshop, Peshawar, Rural, KPK 5125 5.4 Workshop, Lahore 5125 5.5 Workshop, Karachi 6929 27429

Vehicle 6.1 Fuel 3400 6.2 Repairs & maintenance, insurance, and reg 2500 5900

Capital Purchases 7.1 Vehicle 18000 7.2 Table and chair for meeting room 1500 7.3 CD-Writer from Computer and UPS 1450 20950

TOTALS: 176779 176779

Comparing MethodsMethod Advantages Disadvantages

Method One: By Objectives

• Link the design framework for the project.

• Good tool for monitoring and evaluation purposes.

• Good tool for reporting.

• More difficult to prepare. • Can become very complex if

recurrent costs have to be split across too many objectives/activities.

• Administration and equipment expenses can be difficult to assign to individual objectives.

Method Advantages DisadvantagesMethod Two: By Activities

• Link to the design framework for the project.

• Good tool for monitoring and evaluation purposes.

• Good tool for reporting.

• Don’t see the full design framework – only objectives and activities.

• Can become very complex if recurrent costs have to be split across too many objectives/activities.

• Administration and equipment expenses can be difficult to assign to individual objectives.

Method Three: By Assistance

• Simple to prepare. • Easy to report against.

• No link to the design framework. • No transparent means of

showing inputs required to achieve objectives.

• Can not cost individual objectives for comparative purposes.

• Often provide too little information.

• Often no narrative detail.

E. Budget Techniques

• The two main techniques are:1. Incremental budgeting; 2. Zero sum budgeting.

• Incremental budgets are budgets in which the figures are based on those of the actual expenditure for the previous year, with a percentage added for an inflationary increase for the new year.

• This is an easy method that saves time but it is the “lazy” way and is often inaccurate.

• This budgeting technique is only suitable for organisations where each year is very similar to the previous one in terms of activities. Very few dynamic organisations or projects are so stable that this budgeting technique really works for them.

• In Zero based budgets, past figures are not used as the starting point.

• The budgeting process starts from “scratch” with the proposed activities for the year.

• The result is a more detailed and accurate budget, but it takes more time and energy to prepare a budget in this way.

• This technique is essential for new organisations and projects, but it is also probably the best route to go in a dynamic organisation that is proactive in taking on new challenges..

F. Budget Stages

The budget cycle usually has four stages:

• Budget formulation, when the budget plan is put together by the executives branch of the organization/government;

• Enactment, when the budget plan may be debated, altered, and approved by the board of directors etc;

• Execution, when the policies of the budget are carried out by the organization; and

• Auditing and assessment, when the actual expenditures of the budget are accounted for and assessed for effectiveness.

G. Limitations1. Consuming too much time and cost;

even the most efficient organizations take 79 days to plan their budget (Bartrum 2006).

Ford company calculated that they spent $1.2 billion annually for budgeting (2006).

2. Providing little reliable and valuable information; Budgets are based on assumptions that often turn out to be inaccurate. 21% of finance staff time was spent on analysing the budgeting numbers, while 79%

of their time was spent on valueless activities (1999 global best practice study).

3. Adding little value and wasting resources; Specially long term budgets, for three or more years.

4. Encourage parochial and non-ethical behaviour; focusing on Meeting the targets

5. Demotivating employees. Reinforce dependency culture. ‘do what you have been told to do, meet the

budget.” encourage avoid taking risks.

Q/A AND DISCUSSION

Q/A AND DISCUSSION

Q/A AND DISCUSSION

Q/A AND DISCUSSION Q

/A A

ND

DIS

CU

SSIO

N Q

/A AN

D D

ISCU

SSION