QUESTION
Discuss the most pressing challenges for leaders trying to budget in a time of either declining or expanding budgets. What roles do budget managers play in controlling costs?
ANSWER
1. Challenges for leaders in budgeting
Strengthening the government’s ability to manage expenditure would mean adopting strategies that help control and manage costs in public programs. Public budget managers must also recognize that the budget should be flexible enough to adjust for emergent priorities or changes in the community. Rigidity in public budgeting can be found in statutory budgeting, planning and programming as well as line-item budgeting where funds are tied to a corresponding expenditure. Adopting regular performance-based and/or zero-based budgeting would help to realign and refocus the budget based on the needs and priorities of the community. However, the initial resources and expertise that is required for such changes may be substantial, thus making it a challenge for leaders in budgeting.
In the face of declining budgets, a typical approach to re-establishing financial flexibility is to focus on growing revenues through economic development. However, the measures, which include industrial recruitment and workforce development, require the government to spend first before the area can start to see returns. This basically looks to counter the decline of the budget by expanding it first. Expanding the budget involves spending first with the expectation of getting more back. However, the implementation and success of such measures would depend on a variety of factors, not limited to economic conditions nationally and even globally.
To start with, working with public resources is different from working with private funds. Budget planning in public agencies is mostly inefficient. This inefficiency arises from the requirement that such budgets should be negotiated. As a result, most public budget managers have little control over the budget. The budget can also be prepared with a lot of political pressures and this can lead to inadequate funding. Maintaining financial flexibility, especially when there are declining budgets, is therefore a big challenge. Financial flexibility is centered on long-term fiscal sustainability and it involves policies that provide for the creation and maintenance of adequate reserves, the ability to enhance revenues and the ability to manage expenditures.
1.1. Declining budgets
Declining budgets represent one of the most, if not the most, significant challenge for budget leaders. Services need to be reduced or stopped, staff need to be made redundant, assets need to be sold, and the focus is on survival. Many local governments have experienced severe funding reductions from central government as a result of the period of austerity that began in 2010. For instance, the Revenue Support Grant (the main grant compensation authorities receive from central government) was cut by 51.7% in real terms between 2018/2019 and 2019/2020. Such significant and quickly occurring reductions in funding are likely to exacerbate many of the challenges faced by budget leaders. First, budget leaders will have to make incredibly difficult decisions in order to address the budget reductions. This will require not only analytical skills but also political acumen. There will normally be a multitude of players with different vested interests seeking to influence and sometimes frustrate decision-making, including elected members, the public, and different parts of the organisation. These decisions will also require to be made in an environment characterised by uncertainty. Organizations are typically required to forecast their budget position and to identify medium term savings in response to declining budgets. However, forecasting is intrinsically uncertain. There may be changes in demand, the economic environment, the form or availability of alternative services that feed through to other parts of the organisation, or the political priorities. As a consequence of this volatility, effective planning might be hindered. For example, CIPFA (Chartered Institute of Public Finance and Accountancy) found that only 12% of UK local government Chief Finance Officers were confident that they would be able to deliver a balanced budget by 2019/2020 as a consequence of the volatility and uncertainty they faced.
1.2. Expanding budgets
An expanding budget is a budget that is increasing in scale, size, and scope over time. Such a budget may result from matching funds, a multi-year award, transfers of programs, incremental funding for long-term projects, and the construction or renovation of facilities that will ultimately be maintained by the institution. An expanded budget is good news for the organization because it is an indication that the industry is growing. When an industry is growing, then the economy of the country grows too. An expanding budget allows the organization to meet its financial objectives. It provides a financial roadmap that the organization will use in the next few months or years. With an expanded budget, the organization is able to keep up with its growth. However, since there are several sources of an expanded budget, leaders must be very careful when analyzing the different line items and must ensure that the new funding being requested is accounted for accordingly. It is also important to note that an expanded budget will often bring about a lot of paperwork. Leaders will have to become familiar with the key forms and steps associated with expansion in the budget. Such forms may include the personnel action request forms, the sole source provider justification form, the standard justification form, and the budget transfer request form. Furthermore, expanding a budget generally accompanies the filling of a new position or the creation of a new program or service. By and large, as expanding a budget coincides with a new financial plan, considerable planning, communication, and some requirements must be met before the budget becomes operational. An expanded budget entails several benefits. First, it provides a financial roadmap that can be used for many months or even years. An expanded budget allows all changes for growth, inflation, changing patterns of particular items to be incorporated into the planning of budgets. Secondly, a budget that increases is an indication that the industry is growing. This further means that the business will continue to thrive. It is also indicative of a growing economy which will help the organization. Thirdly, a budget that is growing allows the organization to keep up with its growth. When the budget allows for growth, it would mean that the organization’s growth will be kept on track. This means that the organization can be sure to continue meeting its financial objectives while keeping on the growth that has already been achieved.
2. Roles of budget managers in controlling costs
2.1. Monitoring expenses
2.2. Identifying cost-saving opportunities
2.3. Implementing cost-cutting measures
"Place your order now for a similar assignment and have exceptional work written by our team of experts, guaranteeing you "A" results."
