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Theory of Budgets

Introduction

 

The school budget is basically an instrument of educational planning.  Not entirely coincidentally, it is likewise an instrument of control.  The budget reflects the organizational pattern of the school by breaking down the elements of a total plan into divisional, departmental, and/or unit components, allowing costs to be estimated more easily and readily.  It then forces a coordination of these elements by reassembling costs in a total package so that a comparison can be made with total revenues or resources.  This process requires a measure of orderly planning that otherwise might never take place. 

In short, budgeting is the administrative process that forces administrators and staff to plan together what needs to be done, who will do it, and how much it will cost.  Some of the benefits of budgeting to the planning process are:

·        Budgeting establishes a plan of action for the future.
·        Budgeting requires an appraisal of past activities in relation to planned activities.
·        Budgeting necessitates the establishment of work plans.
·        Budgeting necessitates foreseeing expenditures and estimating revenues.
·        Budgeting requires orderly planning and coordination throughout the organization.
·        Budgeting establishes a system of management controls.
·        Budgeting serves as a statement of philosophy and a public information system.

 The Budget Triangle

 

The budgeting process can be depicted graphically as an equilateral triangle:

                                     Expenditures                           Revenues

                                        Plan                                          Plan 

 

                                                        Educational Plan

 

If any one of the three sides of the triangle is shortened, the other two must be shortened by a like amount.  Only when the three sides meet is there a budget.

Educational Plan:  The educational plan is the base of the triangle and must be the first side to be constructed.  Sometimes called the “Needs budget”, the base of the triangle must represent the optimum projected educational plan, while keeping in mind that realistic parameters (the “Working budget”) must be observed.  Important considerations in the development of a needs budget are:  1) special programs, 2) innovations, 3) staff additions, 4) salary adjustments and personnel reclassifications, 5) maintenance and operations, 6) fixed costs (such as copier lease payments), and 7) supplies and equipment requests).

Expenditure Plan:  The second leg of the triangle to be developed is the expenditure plan.  The “Needs budget”, or educational plan, must be translated into financial terms.  In the process, the establishment of program priorities is a necessity, and costs must be developed for each activity.  At this stage, each activity should also be assigned a priority level.

Revenue/Resources Plan:  The final step in the development of the budget is the resources plan, or the determination of the resources needed to meet the budget.  The total spectrum of local, state, and federal sources must be considered, and decisions must be made in regard to the disposition of the expenditures and educational plans with reference to the amount of support available from each funding source.  If the estimate of resources will not support all activities in the “needs budget”, adjustments are made to the educational plan according to the priorities established and the character of categorical funding.  The “Working budget” can then be established by the administration, approved by the School Board, and hopefully, endorsed by the public.

In establishing and managing the budget, the principal will be called upon to act as the coordinator of the needs articulated on the campus, and to negotiate a consensus among the various constituent groups vying for the available resources.  The principal must be able to communicate a variety of constraints that bear on the budget and operations of the campus, including:

·        Funding constraints (in light of priorities)

·        Legal constraints (such as purchasing and bid laws)

·        Political constraints (district policies and community standards)

·        Accountability constraints (Financial Accounting Standards; FARG; etc.)


Key Budgeting Techniques

There exist a variety of techniques for establishing budgets.  Some of the more common techniques include: 

·       
Incremental budgeting
·        Program budgeting
·        Zero-Based budgeting
·        Site-Based budgeting            

Site Based Budgeting in PISD

Under state law, each district is required to establish school committees and to “…outline the role of the school committees regarding decision making related to goal setting, curriculum, budgeting, staffing patterns, and school organization.”  This direction by the legislature is in keeping with the desire of today’s workforce to know the “Why’s” as well as the “What’s” and “How’s” of management’s plans, and certainly to make the schools more responsive and accountable to the public we serve.  Simply stated, it is a movement toward decentralized management that has been commonplace in business for decades.  Site-based decision-making is:

1.      The act of delegating planning decisions in the construction of a budget,

2.      The devising of an accountability system that delegates monitoring functions to the employee in charge of the defined unit, and

3.      Arriving at an accountability system that holds the employee responsible for the organizational unit budget expenditures under his/her control.

 

The principal advantages of site-based budgeting are that it:

·        allows more people to become involved in the budget planning, accounting, and accountability functions.  This involvement assists in the understanding of the budget system and develops higher morale among the participating staff members.

·        allows a more detailed monitoring (in process) of expenditures to take place... that is, “cost centers” are identified that provide readily available information for cost analysis.

·        makes those persons most closely involved with the budgetary decisions responsible for explaining and/or defending decisions to others.

·        allows for adjustments within unit budget allocations to take place with only minimal red tape.. that is, flexibility is enhanced without sacrificing accountability.

·        allows particular schools or departments to address particular and unique needs as they are identified at the decentralized level, within the parameters of the total budgeting system.

·        incorporates many of the concepts of Management by Objective (MBO) theory.
 

It is important for the budget manager to remember that site-based budgeting does not eliminate some very basic concepts of management.  For example, notwithstanding site-based decision making, there are still the three “C’s” in making decisions:

1.      Command decisions - Those made unilaterally by the manager without consulting with others,

2.      Consultative decisions - Those made after receiving input from others, and

3.      Collaborative decisions - Those made by group consensus under the guidance of the manager.

Another fundamental concept of management that remains alive and well under site-based decision making is the thought that authority to make decisions and responsibility for the outcome of those decisions should never be separated.

 

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Last modified: 8/07/2012