Question

How does budgeting for a governmental entity differ from a for profit entity? Why?

What types of budgeting techniques are used for governmental entities?

Answer 1

Budgeting within a profit entity is more flexible and less restrictive compared to a Governmental entity. Governmental entities have to allocate scarce resources among many competing demands. The revenue of these entities is very limited and therefore they have to make very difficult choices regarding how to spend their limited tax revenue. Due to this reason, the governmental entities are required to have a formal budgeting. The very first step is submission of a budget request. Once money is allocated or appropriated, the budget document becomes legally binding on the government agency. They have to stay strictly within the amounts allocated or appropriated for each expenditure category. Any changes from the established budgets need formal approval and are difficult to get through the system. Many times government entity has to raise taxes to spend more. On the other hand, budgetind is not legal requirement for the profit entity. They can implement and use budget as per their discretion. They can initiate any measures to increase sales revenue and can pass its costs directly to its customers in the sales prices it charges.

Different types of budgeting techniques used for governmental entities are as follows :

1. Line-Item Budgeting- budget is prepared considering considering past or historic budget.

2. Planning or programming budget :Program budgeting refers to a variety of different budgeting systems that base expenditures primarily on programs of work and secondarily on objects.

3. Zero base budgeting - The budget is prepared by dividing all of a government's operations into decision units at relatively low levels of the organization.

4. Outcome-focused budgeting: it is the practice of allocation of resources to the production of outcomes. The objective is to allocate government's resources to those service providers or programs that use them most effectively.