Question

Qualitative Techniques, Time Series Analysis and Projection, Casual Models

Which method is most applicable to public sector budgeting?

Answer 1

A) Time series analysis is generally used in public sector budgeting due to below reasons

1) Qualitative techniques are used when data is not available. The biggest disadvantage of these models are they are based on subjective opinions. So these models are not used in public sector budgeting.

2) Causal methods explains the relationship between independent and dependent variables. But they assume this relationship is stationary (permanent ie dont changes with time). Moreover they are costly and time consuming.

Time series analysis applies statisticals methods to historical data and they are easy to apply than causal methods as they are based on less restrictive assumptions. So they are often used in public sector budgeting.

Conclusion: Qualitative techniques are ruled out due to subjective nature of forecasts. Among causal and time series models, time series models are more convenient to use as they are basede on less restrictive assumptions.