Budgets

IS 208A

What are the organizational functions of budgets?

1. Budgets as a planning process

2. Budgets as a priority setting process

3. Budgets as a resource allocation process

4. Budgets as a responsibility allocating process

5. Budgets as an evaluation process

Uses of Budgets

Budgets can be useful To provide overview To help allocate resources To determine leverage points In financial control

Budgets have a political side

Budgets are political documents and are often part of political processes—internal & external

Especially in choice of aggregation In focus—changes versus totals

– Accept the status quo vs.

– Zero-based budgets

Functional vs. Divisional

Role of Costs (again)

Budgeting often involves (arbitrary) allocations of joint costs Frequently through the use of

"overhead rates"

Budgeting Costing Pricing (Remember the telephone leased line

example) UCB per-line telephone and per-node

data charges

Budgets reflect industry type

1. Governmental agencies & non-profits

2. For-profits

3. Startups

Agency & non-profit budgets

1. The Civil Service Model: most of the resources are committed to staff, therefore the budget issues tend to concern priorities for one-time money (grants, gifts, capital spending).

2. Budget cycle once a year Causes difficulties for strategic (multi-

year) planning

3. Implementation decentralized to "professionals”

For-profit enterprises

1. Two flavors of money: revenue and investment.

2. Budgets do not allocate "money," but allocate revenue projections.

3. Quarterly review of revenue vs. projections, continuous evaluation and problem solving.

4. Performance against the budget determines rewards.

A startup model

Funding from VC in a series of “rounds of funding” -- each with defined, measurable goals -- through an evolutionary path.

Friends & family Angel First round, second round buyout or IPO

CEO goal: “drive valuation”

“Flavors of money”

Source and restrictions

One time and recurring

Technology budgeting

1. Startup: Defining the product

Differentiating brand

2. For-profit: Controlling/reducing costs

Analysis of what’s going on

New products

3.Agency & n-p: Improving service

Controlling/reducing costs w/o reducing staff

Planning horizon: motivation

1. Startup: differentiating brand

creating market

2. For-profit:controlling costs and maximizing profit for

shareholders

3. Agency & n-p:Quality of service, asdefined by professionals,

notcustomers

Incentives

1. Startup:Valuation of options

2. For-profit: Bonus

Raises

Promotion

3. Agency & n-p:Professional ethics, job security