Question Tag: Programme-Based Budgeting

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  • 5 Marks

MA – Dec 2023 – L2 – Q4b – Budgetary control

This question explains programme-based budgeting and outlines the disadvantages of line-item budgeting.

Slay Mama Plc (SMP) has been using line-item budgeting since its establishment. The Chief Executive Officer (CEO) recently attended a seminar on “Achieving the best out of your budget”. During the seminar, the facilitator highlighted the benefits of programme-based budgeting since it is a performance-based budgeting approach.

Required:

i) Explain Programme-Based Budgeting. (2 marks)

ii) Outline THREE (3) disadvantages of line-item budgeting. (3 marks)

i) Programme-Based Budgeting:
Programme-based budgeting involves preparing budgets based on specific programmes or objectives that an organization plans to achieve over a given period. Each programme has specific line items, detailing revenues and expenditures, allowing for a performance-oriented approach to managing the budget. This method ensures that resources are allocated based on the programmes’ contribution to organizational goals.

(2 marks)

ii) Disadvantages of Line-Item Budgeting:

  1. Difficult to Assess Performance: Line-item budgeting focuses on detailed categories of expenditure without linking them to outcomes, making it difficult to evaluate the performance of specific programs or activities.
  2. Possible Inefficiencies: This budgeting approach may encourage managers to spend their entire budget allocation, even when savings are possible, for fear of having the budget reduced in subsequent periods.
  3. Lack of Innovation: Line-item budgeting tends to focus on historical spending patterns and incremental adjustments, which may stifle innovation or flexibility in resource allocation.

(3 marks)

  • 12 Marks

PSAF – Nov 2017 – L2 – Q3a – Public Sector Fiscal Planning and Budgeting

Distinguishing between Activity-Based Budgeting and Programme-Based Budgeting and explaining the advantages of Programme-Based Budgeting.

The Minister of Finance is mandated by law to develop a budgetary system throughout the public sector. Recently, the government has moved away from Activity-Based Budgeting to Programme-Based Budgeting system for many reasons.

Required: i) Distinguish between Activity-Based Budgeting and Programme-Based Budgeting. (4 marks)

ii) Explain FOUR advantages that Programme-Based Budgeting has over the Activity-Based Budgeting. (8 marks)

a)
i) Activity Based Budgeting Vs Programme Based Budgeting
The following are the differences between ABB and PBB:

  • ABB links resource allocation to the activities required to be undertaken in order to achieve a desired output, but PBB assigns resources to measurable results to be achieved.
  • ABB emphasizes the relationship between activities and cost, thereby producing much detail on overheads, whereas PBB focuses on the linkage between programme funding level and expected results of the programme.
  • ABB produces detailed information on cost on each activity, thereby making control cumbersome, but PBB aggregates cost information at the programme level rather than activity level.
  • ABB provides full costs of programmes and services which are more transparent and available for planning, budgeting, and decision-making, whereas PBB consolidates the cost information, thereby limiting transparency and availability of full cost information for planning, budgeting, and decision-making.

(2 marks each for any 2 differences explained = 4 marks)

ii) Advantages of PBB over ABB

  • It provides a framework for measuring the performance of the MDA expenditure programmes.
  • It enables effective management of resources to achieve government outcomes or objectives since the emphasis is on programmes attainment rather than a mere performance of activities.
  • It promotes process accountability and transparency that enables the public to judge the fiscal stewardship of the managers.
  • It provides a specific linkage between resources allocation and strategic policy objectives of the MDAs. That is, it establishes a closer link between resources allocated and what has been done with it.
  • It makes budget evaluation and control much more focused and conclusive. It becomes very easy to measure which programme outcomes are achieved and those that are not.

(2 marks each for any 4 points explained = 8 marks)

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