Budgeting lies at the foundation of every financial plan. It doesn’t matter if you’re living paycheck to paycheck or earning six-figures a year, you need to know. Researching your budgeting software options can be overwhelming if you’re just getting started. I believe that whatever is the most easily executable. Best Free Program For BudgetingZero-based budgeting can be accomplished using a budget worksheet, budget software, or our free budget app. Start budget planning today! Reviews 'William West has advanced our field by providing a sober assessment of the record of program and performance budgeting in federal agencies. The Wallace Foundation is a national philanthropy that seeks to improve learning and enrichment for disadvantaged children and foster. Program Budgeting Works in Nonprofit Institutions. Professionals in nonprofit service organizations have long resisted the inauguration of cost accounting concepts (in many instances with good reason), but their resistance is breaking down in the face of supporters. Often, however, the well- intentioned management and trustees of an institution do not know how to begin introducing cost accountability and program budgeting to their operation. In this article the author . The same principles, he says, are applicable to other nonprofit professional activities. A minor aspect of the honorable tradition of eleemosynary activity has been that you could not, and did not need to, account for the cost of services being provided. You could not because they were qualitative and intangible; you did not need to because funds were provided by gifts, grants, endowments, and so on. Computer Program For Budgeting MoneyFor the last several years this tradition has been called increasingly into question as the desire for cost information and accountability grows and as the control bases for cost accounting come more and more into focus. However, there has not been much recorded practical experience on which to judge the utility of cost accounting in institutional management. This article is a record of one such practical experience. It is written for businessmen who, as trustees or directors of institutions, find themselves as frustrated as I was at the inability of some administrators to deal effectively with costs or even to keep track of what was happening financially. I hope it encourages them with the thought that it can be done. Program cost accounting is in its third year of functioning at the South Shore Mental Health Center in Quincy, Massachusetts, a community agency with about 1. The agency derives its funds from a variety of sources for a variety of reasons; its professional staff is employed on a variety of terms, and there is no objective or numerical measure of the value of its diversified services. It therefore has most of the cost accounting problems of nonprofit organizations. The first two of the following sections are written for those who are not familiar with either cost accounting or program budgeting. Both are essential to understanding the utility of program cost accounting. Anyone who knows these subjects should skip to the point in the article where I describe how we put them to use. It begins with the section, . It is also used to determine the cost of services or activities. While this incentive is not present in nonprofit institutions, cost accounting has at least these three other important purposes: efficiency and cost control, planning and allocating resources of people and funds, and . If you know how much it costs to do something under optimum conditions and if you can measure the output of that something fairly accurately, then you can determine actual costs per unit of output and keep track of how efficiently the job is being done. Of course, you have to be careful that cost saving is achieved without sacrificing quality of output. This is the reason why many institutions have felt that cost accounting is a bad influence. They say that the quality of service is too precious and fragile to be subjected to the pressure of cost accountability and to the drive for efficiency. Clerical and record- keeping operations, library services, nursing services, and storekeeping are examples of operations involving clearly defined results and enough labor to make worthwhile the effort of directing them efficiently. Food service is another good example. A meal is either served and eaten, or it is not, and the size of portions and nutritional value can be measured and controlled. Most maintenance activities can be quite clearly defined and the standard of quality made explicit. It is possible, for instance, to determine the optimum time for mowing a lawn, clearing a drain, making a bed, or repairing a boiler. For the most part, these estimates are used to schedule tasks and monitor performance, but they can easily be converted into dollar costs, when there is reason to do so. So- called . Sensibly used, they need not be. It can be far more satisfying to work toward a well- defined and attainable goal than to work under the pressure of a never- ending backlog and an unknown and never- reached standard of excellence. Furthermore, pride in one. Standards should be a sensible way of organizing and carrying out tasks, not a means for applying pressure to reach unnatural levels of performance. Resource allocation: A great deal of planning is done without cost accounting, and a great many institutions survive without planning. It is generally agreed, however, that careful planning and resource allocation are important elements of good management and that precise estimates of costs are necessary for careful planning. Costs can often be gauged accurately enough for use in planning without going through the labor of accounting for actual costs. But there is no better way to verify the accuracy of estimates than to account for actual costs and then to compare them with the estimates. While cost accounting has to be painstakingly accurate to be useful in measuring and controlling efficiency, a much wider range of imprecision is tolerable for planning purposes. A decision to expand a facility or to move in one direction rather than another will probably be affected by a 5. This is why it is useful to cost professional services even though a legitimate respect for professional freedom of action requires acceptance of a substantial probability of inaccuracy. In profit- making enterprises this incentive is obvious. In nonprofit institutions it is becoming obvious as they take on activities for which someone (usually the government) is willing to reimburse them. Medicare is one example. Another is the contract research work that many organizations undertake; cost accounting is at the heart of disputes over whether they are receiving adequate reimbursement. When dollars change hands, accuracy is extremely important to both parties, but it is of a different order from that required for measuring efficiency. If they wish, the two parties to a cost reimbursement contract can agree on completely unrealistic or arbitrary definitions of cost. It is then necessary only to follow these agreements faithfully to obtain satisfactory reimbursement. Usually, the simpler these agreements, the better, however much they may differ from principles of . But continued use of unrealistic cost definitions ultimately makes the recipient of funds dependent on them and forces him to distort his actual experience to fit the reimbursement pattern. Problems in use Associating costs with products or activities is simple enough conceptually, but in practice there are several problems for which there are no very satisfactory answers. The most troublesome of these is what to do about costs that are common to several products or that do not vary with the amount produced. All the alternatives proposed or in use involve some means of prorating these overhead costs, joint costs, or fixed costs. The most common method is to relate these indirect costs to one or more of the direct costs, such as labor hours or labor dollars. Whatever method is employed, users of cost data must keep in mind that the allocation is somewhat arbitrary. Troubles arise when they start thinking of these aggregates as . Plant costs are incurred before use in production, but other costs for which payment may be made in the distant future, such as employee pensions and deferred maintenance, must also be taken into account in determining the cost of current activities. There are many theories concerning which of several methods of depreciation, amortization, or accrual is best and whether and how provisions for technological change and inflation should be made. As with overhead costs, however, all methods make somewhat arbitrary allocations. This tradition is being questioned increasingly as institutional managers try to compare costs of different activities and, particularly, as they find the government and others willing to pay for the . When you make widgets, it is easy enough to figure. In the service sector, providing meals and giving gamma globulin injections are clear- cut units of output. But it is not easy to define a satisfactory . It is useful to know the cost per patient- hour of medical treatment or the cost per student- hour of education, although they are not units of output. The real output here is health or knowledge, and we do not yet know how to measure either well enough. It is important for an organization to have accurate unit cost data for planning and evaluating the use of its resources. It is also important to be careful how the data are used for cost control. The real product could be seriously impaired by an attempt to minimize the cost per hour. Program Budgeting Traditionally, budgeting in institutions has been a purely fiscal function divorced from social service planning. Customarily, about once a year the financial or accounting staff looked at the institution. Sometimes the staff went so far as to ask the professionals what staff they expected to add or subtract, and at what change in cost. The result, the budget, was submitted to the board of trustees. I wonder how many trustees have shared my experience of masking feelings of impotence and ignorance as I solemnly reviewed the lists of figures. From time to time I would ask why a figure differed from the corresponding one a year earlier. If the income did not equal the outgo, I refused to approve the budget. But as soon as the budget was in balance, I approved it, without any real reason for knowing that the year could or should come out that way. The process actually has worked quite well, and I do not mean to suggest that it be abandoned. After all, some sense of financial responsibility is better than none. Something better is available now, however.
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