Budget Report: Traditional vs. Alternative Budgeting

This report examines the purpose and objectives of budget reports, specifically within the context of a private non-emergency hospital like Emelia's. It emphasizes the importance of budgeting for tracking, controlling, and planning financial resources in a dynamic business environment. The report details the traditional budgeting approach, highlighting its elements, such as fixed time periods, and incremental forecasting. It then analyzes the inefficiencies of this method, including time consumption and inflexibility. The report then transitions to alternative budgeting systems, including rolling budgets, flexible budgeting, zero-based budgeting, and participatory budgeting, explaining how these approaches can address the shortcomings of the traditional method. The report concludes by discussing the advantages and disadvantages of both traditional and alternative budgeting methods, and how they can be applied to improve financial control and planning.

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Budget report
Name
Institute

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Budget Report
Purpose and objectives
The fundamental goals of creating a budget for a private non-emergency hospital like
Emelia’s is to track, control and plan the spending of financial resources. Well-organized
organizations are aware of the significance of making appropriate plan of their activities to
follow the desired goals. In the environment of businesses like Emilia’s, there are consistent
changes taking places, most of which are also influencing the market on greater scales. These
changes are creating demanding situations for organizations as they are now required to improve
the process of making plan, evaluate and control in the light of necessities of rapidly changing
methods of decision making that can make sure of quality, profitability and expansion of its
objectives.
Budget serves as a resourceful instrument for exercising control and planning of the
organizations’ operations in most effective manners. It establishes, as accurately as possible, how
the company's business is expected to run, usually within a period of at least one year, providing
a very close picture of the scenario in coming future. For establishment of the team’s goal,
budget serves as the mean to follow the required path. The practices related to the budgeting of
business organization are among the administrative methods extensively used by multiple level
institutions in business like those of private health care provide.
In today's competitive business environment, the financial-accounting professionals who
see budgets as a powerful tool that enables them to achieve not only the goals of their companies
but also their own professional success stand out. A global planning system is a set of plans and
policies that, formally established and expressed in financial results, allows management to know

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the company's operating results and then execute the accompaniments necessary for these results
to be achieved and possible deviations Analyzed, evaluated and corrected.
Fundamentally, the budget system implies the use of accounting techniques and
procedures applied in advance to the facts resulting from plans, policies and targets to achieve a
desired result. Therefore, at the end of the process, the financial statements are prepared under
assumptions conditions that are expected to occur during the period. In spite of being seen by
some officials as more of a maneuver by management to curtail their freedom and action, as well
as a way of investigating and controlling their actions, the purpose of budgets, according to
(Hope and Fraser,2013). In the control and planning tasks, formalizing and systematizing these
tasks, thus creating conditions for the improvement of administrative actions, and allowing a
more objective assessment of the performance of the various sectors of the organization.
When we work without the budget, we work only on the billing month and it is expected
from the individuals at leading positions to be aware of the established goal and communicate
them further to their teams. This has been happening a lot with medium and small-sized
businesses like ours, as reluctance has been shown against the usage of corporate for managing
and predicting the future outcomes, saying that this is not part of their reality. These aspects need
to be revised as, due to the structure of their organization and their ways of dealing with, they
have certain vulnerabilities related to the changes, that makes them need to develop planning
tools for making it possible to streamline decisions. A true budget involves all employees of the
company, particularly the individuals at leading and supervising positions are required to execute
it as planned. A sequence of forecasts is included in budget, which is founded on the
anticipations and expectations of the market and performance in general.During this process, the

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past data is always taken into account along with the facts that had altered the patterns of
predictability in past.
The full business budget necessarily includes the following specific budgets:
• Budget of result
 Budget of cash
 Budget of investment
 Budget of general expenses
 Total costs budget
 Budget of production
 Budget of sales
After the budget is being place the goals for individuals and allocation of resources is set
for at least a duration of a year. The teams are required to follow the budget’s goals and
objectives on monthly basis for making sure that the predictions have been realized and
redirected to act in accordance with them for complying with the desired inclinations (Lee et
al,2012).
Applying traditional budgeting
Like a number of other facilities, we have been following the model of traditional
budgeting at Emilia’s hospital. By providing coverage for on whole year without making
changes in the middle, the process of budgeting could be approached in traditional manner. The
forecast presented in this form of budgeting will not changing unless the duration for which

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budget was intended has passed. As, it is easy to put together this type of budget and provide
simple co-ordination across the departments, our organization have been following this approach
of budgeting in the past.
The budget process is dissociated from the planning and programming processes in
traditional approach. The allocation of resources is aimed at acquiring means and budget
decisions are made taking into account the needs of organizational units. In the elaboration of the
Budget the financial needs of the organizational units are considered. Budgeting is the link
between planning and executive functions of the organization. Allocation of resources is aimed
at achieving goals and targets. Budget decisions are made on the basis of technical assessments
and analyzes of possible alternatives. In the preparation of the Budget, all the costs of the
programs are considered, including those that extrapolate the exercise (Andrew and Hills,2003).
For approaching the process of budgeting with its traditional approach, following are the
elements that needs to be examined while embracing it:
Time period: For approaching with traditional budgeting, fix budgeting approach is being
followed. The time period for the budget will have to be specified that could not be subjected to
changes before the defined cycle has completed. This period of time is usually coinciding with
the fiscal year of our organization.
Forecast values: While applying traditional approach of budgeting to Emilia’s, the fix
budget approach is being incorporated. For a provided period of time, one forecast has to be
presented that will remain the same during the entire life of that budget, until the time for
proposing new one has arrived.

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Process of forecasting: The traditional approach of budgeting would deploy incremental
budgeting for the process of forecasting in the budget of Emilia’s. The period of last budget
along with real outcomes as well as the expected results for the future are all utilized in the
determination of budget for coming period.
Setting of goals: The traditional approach of budgeting would make use of top to down
approach while determining the goal setting for organization. The future prospects that are
needed for consideration in the accomplishment of budget’s objectives are incorporated in the
setting of those goals (Hollenson,2015).
Analysis of traditional budgeting
There are some inefficiencies associated with the traditional approaches of budgeting.
Great amount of time is being exhausted by the traditional budgeting and the resource
management also would increase because of the ineffective utilization. However, there still may
be limited number of people associated with the process of budgeting, who would consider the
time spent on the process to be worthy of its performance.
The utilization of spreadsheets in the process provides one of the reason behind it being a
time taking process. Despite being the most commonly used tools of bugeting in majority of the
organizations, they inherently have some limitations, for instance:
 Being prone to the errors of data entry
 Having issues of version control
 Challenges in development of perfect formulations

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The budget in traditional approach soon becomes absolute as it is designed for a whole
year during which multiple number of changes would likely have taken place. Regular
conduction of reviews cannot be applied to the budget as it is one time phenomena per year in
the traditional approach. During such duration, it is very likely that organization had gone
through multiple number of changes and has added newer services to their facility. The
traditional approach lacks the flexibility to incorporate the emergence of new services to the
existing budget. In addition to that, the organization could not have an access to real time
evaluation of its resources and performance in the light of established goals of budgeting.
As the traditional approach of budgeting lacks the capacity to reward and holding
accountabilities, it ends up in failing to motivate the work force to follow the desired behaviors
for accomplishing the goals of budgeting. In the absence of accountability, the employee at
Emelia’s cannot be motivated to contribute into the pursuit of intended goals. Furthermore, due
to the lack of certainty associated with the outcomes of budgeting and performance, feedback on
the present performance in accordance with the intended goals could not be obtained.
Despite all the shortcoming, there is some positive potential in the traditional approach of
budgeting. It has the potential to allow organization in practicing control over the financial
activities in an inclusive manner. The management of activities could be made easier with such
exercise of control and the stability could be maintained in the organization. As it has been in
practice for a very long time, it has become a part of the organization’s culture that may not be
very easy to replace. Lastly, it has the advantage of accommodating the need for decentralization
in the organization.
Understanding of alternative budget systems

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The elements of the traditional approach could be modified while considering their
shortcoming to get an evolved process of budgeting. The fundamental elements of the traditional
budgeting could be changed by introducing alternative approaches as follow:
Time period: For approaching the budget’s time period, the traditional fixed budget
approach can be replaced by the advanced approach of “Rolling budget”. In this approach,
continuous updates are being brought into the budget to attain the stability of time frames.
Meanwhile, the changes in budget are covers the actual period. For instance, with the passage of
each month, 1-year budget would get extension by a month that would manage budget in a way
that would leave organization always with 1 year budget that gets updated each month.
Forecast values: The static budget strategies of traditional budgeting could be replaced
by applying the alternative of flexible budgeting. This approach of budgeting can then adjust the
costs and revenues of budgets during the period of budget in accordance with the variances that
have been determined previously among the actual and budgeted revenues or outputs.
Process of forecasting: The traditional approaches of incremental budgeting are replaced
by the approach of zero budgeting for the process of forecasting. It is a process that starts from
the ground and goes up in the same way as the budget has been prepared for the first time.
Setting of goals: In contrast to the traditional budgeting that would incorporate top to
down approach, the alternative would follow the participatory budgeting. The individuals who
are expected to contribute for accomplishment of the budgeting, are involved in the setting of
goals.
The Performance Budget or Performance Budget seeks to establish things that the
government performs (governmental actions) and not just the things that the government

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purchase (items of expenses). This budget represents an evolution of the traditional budget (Hope
and Fraser, 2013).
An incremental budget is when the definition of the amounts of resources to be allocated
to the programs, actions, organs or expenses is made by incorporating marginal increases in each
item of expenditure, keeping the same set of expenses of the previous budget (or with minor
adjustments). That is, the budget of each period maintains the same structure of expenses of the
budget of the previous period, only making increment in the amounts of each expense. In this
way, the options and priorities established in the past tend to remain unchanged over time, and
the budget ends up not reflecting a reassessment of new needs and priorities of society.
Therefore, it is easy to see that this budget does not privilege the efficiency of spending and the
evolution of administrative action.
The zero-based budget or strategy is a counterpoint to the incremental. The zero-based
budget is a budgeting technique whose main features are the critical review of traditional
spending in each area and the creation of alternatives to facilitate the scale of priorities to be
taken for higher decision. To implement this technique, it is necessary for executives to establish
the parameters of each program, the identification of decision areas, each manager of these areas
establishes three levels of spending for each program (minimum, current and highest) and that at
each level of the organization classification (prioritization) is performed.
The zero base budget is basically a program budget, using the entire planning and
budgeting operational process, based on the preparation of decision packages, to choose the goal
level dictated by the weighting of the cost-benefit equation.

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The decision package will be submitted to the Decision Institution, which is the
organizational level that classifies them. Prioritization can be done at several levels before the
entire organization is classified. In addition, a decision package should be prepared at the
minimum, current and expansion effort level. The participatory budget is characterized by a
direct and effective participation of communities in the elaboration of the organization’s budget
proposal (Bander and Atinkston,2001) .
The potential application of these methods
Rolling budgeting has the potential to eliminate the uncertainties associated with the
outcomes of budgeting. The targets of performance have to be set by the financial leaders in
implementation of rolling budget. The targets have to be set in such a way that they follow
marginal improvements over the performance of past years practical outcomes. Extrapolation or
rate forecast is being run by the staff on the existing financial trends that have been created in the
light of information obtained from the results achieved in the past year and compared against the
new goals to be targeted. It is expected by the health care organizations that by abandoning the
traditional budgeting to opt rolling budget, more room for strategic investment of resources could
be created while the organization can be made financially agile in the process. This approach of
budgeting has shown to have the potential of cultivating improved environment while
encouraging accountability and managed performance.
The process of zero budgeting can be applied to Emelia’s for the budgeting of new
services for which the budget has to be designed from initial point of zero. Furthermore, for
subjective heads, such as equipment, maintain and repairing are the other areas where this
alternative can be used to replace the traditional approach in the facility of this hospital. These

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are the areas of budgeting where establishing while referring to the previous years’ information
is not required. For support and discretionary services, zero based budgeting is the most
appropriate approach. The process of implementing ZBB involves determination of
implementation’s scope, decision units’ identification, decision package preparations, ranking of
packages followed by the preparation and final implementation.
Performance based budgeting aiming at providing the budgets accountability involves
contribution from leader for its application. A well-organized framework has to be designed
aiming at the execution of budgeting goals that can hold the employees accountable not only for
their operations but also the end results. Accomplishment and ongoing progress of the outcomes
has to be communicated appropriately for implementing such approach (Heyward,2015).
Appropriate methods to Emilia’s
For bringing the alternative approaches of budgeting to the traditional ones, there are
certain approaches that could be incorporated together to accomplish desired goals for the
organization. For provisioning of accountability to the organization’s budget by evaluating the
performances of individuals associated with the end goals of budgeting, performance based
budgeting could be followed. At every level and stage of the budgeting, it is required that the
desired level of compliance with the pursuit of established goals had been made. The information
of the inputs that measure the budget, output units, and cost dedicated to every activity and the
accomplishment level of goal at every stage is needed for conducting performance based
budgeting. This approach makes sure of the fact that the goals are being followed at every
occasion and activity while the resources have been effectively managed in the process. Decision
making takes place in the light of present and past information combined together along with the

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consideration of estimated targets in the future. Performance and financial information is
contained by the budget report to relate these aspects with the strategic plan.
At Emelia’s, there is a regular need for budgeting approach to accommodate the new and
discretionary services that could be met by the zero based budgeting which starts considering
the process from zero (Pyhrr,1977). The decisions in this approach are taken on the basis of cost
benefits and hence the projects that do not have to offer the cost benefits are likely to be
excluded. The supervisors and higher officials are given the flexibility to execute certain projects
while leaving the others behind due to lack of the benefits associated with them.
The uncertainties associated with the pursuit of intended goals could be eliminated by
adopting rolling budget approach that involves the budgeting each month while rolling towards
one year. The number of details covered each month reduces as the uncertainties begin to rise
with the passage of each month. This approach of budgeting is likely to close the gap between
the ideal and realistic outcomes of the budgeting. As the information would always be updated
and fresh in rolling budgeting, great deal of control and planning could be practiced in the
Emilia’s hospital facility. By cultivating the environment rich with potential of improvements,
rolling budgeting can bring great deal of efficiency and effectiveness by eliminating the waste.
This approach has the potential to provide organization with the capacity to follow long term
goals instead of traditionally followed short term goals in this organization. With the updating of
information in regular manner, the level of accountability and management of performance could
rise to a new level (Bierman and Smidth, 2012).
So, in a nutshell, sufficient level of improvements and effectiveness can be brought in the
process of budgeting if the approaches of Rolling budgeting, performance based budgeting and