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Assessment of the Value of the Budget Cycle

A budget cycle is a valuable tool for both governments and organizations in creating and approving the budget. The assessment of the budget cycle identifies the significance of each step in the budget cycle.

Revenue Estimation

Revenue estimation for the budget is performed by the executive branch of an entity, such as the manager, budget director, clerk’s office, and finance director. At the federal level, the president is tasked with the responsibility. In a parliamentary system, the chief executive or the prime minister is charged with the estimation. Also, the budget estimation needs to factor input the return on investment and the underlying risk (Rubin, & Mantell, 2020). The revenue estimates are tabled for the next step of budget formulation. This is the initial strategy of the budget cycle.

Budget Formulation

Budget formulation entails a reflection of the past performance and the set objectives followed by a reconciliation of the revenue estimates. The primary activity at this stage is to set the parameters of the budget. The executive arm of either the government or an organization indicates revenue generation and mode of resource distribution. The appropriate technique is incremental budgeting.By using the historical data as a baseline, the formulators can determine the budgetary allocation for the following year. The historical data includes both expenditure and income data as the starting point.

Budget Hearings

The budget hearings include public and stakeholders’ participation, executive, sections, and the departments.The aim is to discuss the budget changes during the budget formulation after the revenue estimates. During the budget hearing process, valuable input is incorporated into the proposed budget. At this point, the public is invited to offer their proposals in case of a government budget. In the case of an organization, the stakeholders get a glimpse of the executive plans. Also, have a chance to input their contributions.

Budget Adoption

Budget adoption entails the final approval by the legislative body: congress, state legislature, school board, or the shareholders. The legislature’s task is to review the budgetary recommendations of the executive based on the original agency or departmental budget requests. The legislative body may decrease the budgetary allocations for specific areas (Goleva, & Mircheva, 2020). However, in some instances, there exist limitations in increasing budgetary allocation. In a parliamentary system, the parliament can modify the budgetary allocation but cannot increase the government’s expenditure. The modifications are based on a series of hearings where individual agencies or departments and the central budget office testify. In a government setting, the approved budget becomes law.

Budget Execution

The executive is tasked with collecting the approved revenue and allocating it according to the approval by the legislative body. The entire process involves reporting, adjusting, and monitoring the approved budget. The executive can only undertake the projects, programs, and policies in the enacted budget (Fischer et al., 2017). There exist differences in the monitoring and regulation on the adherence to the budget among governments and organizations. However, it should be according to the set regulations.

Assessment of the Value of Budgetary Planning Techniques

Budgetary assessment evaluates whether the allocated resources or revenue has been used effectively and appropriately. The four steps include forecasting, financial modeling, driver-based planning, and trend analysis.

Trend Analysis

Trend analysis encompasses both long-term and short-term evaluation of the expenditure and revenues. The periods may be measured in years, quarters or months. The aim is to analyze and calculate the percent change and amount change over the periods (Molotok, 2020). Hence, one can identify areas of over-spending and areas with extra money. The results determine whether the spending is aligned to the financial goals of the budget.

Driver-Based Planning

The driver-based planning examines the critical aspects of the budget, both expenditure and revenue, and the elements that influence their trend. Such elements include the number of residents, the overall objective, and the amount of revenue generated. The outcome of this stage is to link the expenditure required with the revenue needed to fulfill it. Also, the relevant body is guided on which elements need to modify to ensure the budget is still aligned to the financial goals.

Financial Modeling

Financial modeling entails the use of equations to support driver-based planning. The process builds an abstract representation that mirrors the real-world financial scenario. Examples include spreadsheet models for modeling techniques, forecasting, company valuation, and investment analysis. The financial modeling results support the identified trends and the required changes since the executive presents an almost real-world scenario. From the financial model, the stakeholders have a glimpse of what to expect in the future.

Forecasting

Forecasting incorporates financial modeling into linear regression, multiple regression, and nonlinear extrapolation. This predicts the future outcome and tests the model fit of the financial data used in financial modeling (Kumar. 2021). Hence, the government or the organization can estimate the expected income or revenue. Remember, the budget quantifies the expected revenue while forecasting indicates what will be achieved in a future period.

References

Fischer, L. S., Santibanez, S., Jones, G., Anderson, B., & Merlin, T. (2017). How Is CDC funded to respond to public health emergencies? Federal appropriations and budget execution process for non–financial experts. Health security, 15(3), 307-311. https://www.liebertpub.com/doi/abs/10.1089/HS.2017.0009

Goleva, V., & Mircheva, V. (2020). Constitutional and financial legal aspects of the state budget in the republic Of Bulgaria. Economics & Law, 2(1), 16-42. https://ideas.repec.org/a/neo/ecolaw/v2y2020i1p16-42.html

Kumar, S. (2021). Predictive, regression, and model building for driver-based budgeting.

Molotok, I. F. (2020). Bibliometric and trend analysis of budget transparency.

Rubin, M. M., & Mantell, N. (2020). Revenue forecasting and revenue estimation. In Encyclopedia of Public Administration and Public Policy (pp. 2920-2926). Routledge. https://www.taylorfrancis.com/chapters/revenue-forecasting-revenue-estimation-marilyn-rubin-nancy-mantell/e/10.1081/E-EPAP3-546