Question

Differences between performance-enhanced budgeting and a "traditional" budget process?

Answer 1

Traditional Budget:

1. The objective of this budget­ing states that the actual expen­diture should not exceed the budgeted allocations.

2. It gives more importance on the financial aspect rather than the physical part.

:So it become difficult to achieve and to measure the actual performance in the relation to physical and and cost of units.

3. Usually these budgets are prepared for the different nature of expenditure like ., Salaries, Stores & Material, Rent, etc.

4. It is not so effective when controlling activities at the time of the preparing budget. It is not able measure the performance criteria.

5. It is prepared on the basis of past year’s performance with addition and other alterations

Performance Budget:

1. The objective of this budgeting is, to have the performance as compared within the budget allocations.

2. This budget, on’ the other hand, objects at establish­ing the relationship between the inputs variables and the outputs.

3. In this budgeting main goal is to be given on the purpose for which the expense is incurred and not on every item of expenses.

4. It is, more effective way to control various activities as it mea­sures the input-output relation­ship.