This document discusses budget planning and management. It defines a budget as a statement that allocates monetary resources to achieve organizational objectives. Effective budgeting requires a strategic plan aligned with available funds. It outlines principles like using budgets as a management control tool through resource allocation, financial planning, and improving efficiency. Different budget types are described, including income/expenditure, capital, and cash budgets. Approaches like incremental, zero-based, line-item, and performance-based budgeting are compared. Operational budget planning methods involve creating an accounts chart, reviewing guidelines, forecasting revenues, and computing activity requirements. The framework shows budget allotment, allocation, expenditures, and working capital. Key management activities are ver

1. Budget Planning and
Management
- Noel Lawas MD -

2. Definitions
• Budget
– A statement containing the list of commitments
by a body to provide the required resources with
a given monetary value, to perform the activities
that are expected to attain a given objective.
– In an organization, the budget is the final act of
commitment to the strategies it has set forth to
do in the future in order to achieve its desired
strategic objectives.

3. Pre-requisites Before Arriving at an
Optimal Budget
• A sound organizational strategic plan that
considers the available funds that can be
provided at the time these are needed.
• Relevance of the budgeted activities to the
attainment of the strategic objectives.
• Outputs of the budgeted activities can be
objectively measured and assessed.
• Revenues from activities to be undertaken can
be predicted with acceptable degree of accuracy

4. Strategic Planning Cycle vis-a vis Budget Cycle

5. Conceptual Framework to Budget
Planning in an Organization
Strategic Plan Budget Policies
of the Organization Capital Budget
Program / Medium-term
Departmental Budget Plan
Plan (3 to 5 years)
Operational Annual Budget
Plan Plan

6. Principles Underlying Budget Planning
and Management
• Budget as a control instrument of
management
– Resource allocation: priority setting and
spending plan
– Financial control and planning: containment of
expenditure, financial forecasts
– Improving efficiency and effectiveness of
organizational resources/activities
– Communication: between different levels/units
of organization and its stakeholders

7. Principles Underlying Budget Planning
and Management
• Types of Budget
– Income and Expenditure Budget
• sets out the anticipated (recurrent) costs of the institutions and
shows the source of funds to cover them.
• annual income and expenditure budget is often broken down into
shorter periods for better monitoring
– Capital Budget
• Budget for capital projects and acquisition of equipment or fixed
assets
• need separate budget and monitoring because it usually involves
major expenditure items and non-recurrent costs
• need to consider the effect of capital investment on recurrent cost
• e.g., Vehicles, building hospital, medical equipment
– Cash Budget (Cashflow Forecast)
• aims to monitor the availability of cash: whether sufficient cash is
available in the bank to meet the payments needs as they arise
• based on the income and expenditure budget and capital budget

8. Principles Underlying Budget Planning
and Management
• Approaches to Budgeting (Process of budget
formulation)
– Incremental Budgeting
• Increase the amount of budget based on the budget of the previous
year
• Idea of historical budgeting: historical funding allocation plus
adjustment for inflation, usually based on inputs (personnel, bed)
not taking into account actual utilization
• simple and little requirement for management and clinical
information: incremental budgeting can be used when annual policy
and plan is stable
• perverse incentive and reward for spending more (to get greater
budget next year)
• lack of incentive for efficiency and effectiveness: little incentive to
improve outputs and outcomes, little incentive for innovation and
change in management and service delivery
• cannot reflect changing needs

9. Principles Underlying Budget Planning
and Management
• Approaches to Budgeting (Process of
budget formulation)
– Zero-based Budgeting
• considers the previous year’s budget as zero
• re-evaluates all the projects, and allocate budget
according to priority
• takes much time and cost
• idea of needs-based budgeting: budgeting based
on the resources required to meet health care
needs of population (epidemiological and health
profiles, needs for health care and prevention)

10. Principles Underlying Budget Planning and
Management
• Budgeting Systems (Budget allocation structure)
– Line-item budgeting
• Distribution of expenditure item by item, to make it possible to control
budget expenditure
• budget allocation by input classes: salary, drug, equipment, fuel, etc.
• usually short-term, no link to outputs or outcomes
• Indicators: total cost, % of labor cost…
• Pros
– expenditure list and amount is clear and accurate
– clear budget and accounting responsibility
• Cons
– Inflexible: hard to deal with unexpected incidents or changing needs
– Focusing on budget items and monetary inputs (expense items), not
the result of a project → can fail to achieve initial goals of
government programs
– Limited attention to the value for money: difficult to monitor and
evaluate the efficiency and effectiveness of funding

11. Principles Underlying Budget Planning and
Management
• Budgeting Systems (Budget allocation structure)
– Performance-based budget
• budget allocation based on outputs (not outcomes)
• budget allocation by programs: maternal health, primary care,
immunization, hospital inpatient care, HIV/AIDS, etc.
• Pros
– helps stakeholders understand what organization is doing and why
– can better establish long-term plans, and use organizational
resources more flexibly
– can include performance objectives in the budget
– budget as a management tool: compare actual and planned
performance
– e.g., No. of hospital admissions, No. of fully immunized children
• Cons
– Setting performance is tough: quality of performance indicator,
consensus on performance measure, track/measure performance,
etc.
– may be hard to control public expenditure

12. Program/Operational Budget
Planning Methods
1. Create a chart of accounts for revenue and
expense with corresponding account codes
– Examples
• Revenue accounts – revenues from drug sales, ancillary
services, service fees, rentals, donations, subsidies,
retainer fees, etc.
• Expense accounts
– Personal Services – salaries, hazard pay, Christmas bonus,
13th month pay, honoraria, etc.
– MOOE – transportation, supplies, utilities, services,
communications, repairs, etc

13. Program/Operational Budget
Planning Methods
1. Review budget guidelines and policies
that may set the environment for budget
planning
– Note the budget amount limits imposed under the
budget guidelines
2. Identify sources of revenues and develop
forecasts for the period covered.
– Note if the use of revenues for each source has
restrictions

14. Program/Operational Budget
Planning Methods
1. For each activity identified in the operational
plan, compute budgetary requirements
specifically needed to implement the activity.
These requirements should consider personal,
mooe and finance expenses for each activity.
– Note: Some types of expenses cut across different units and
programs (eg. Salaries, utilities). In this situation, each of
these expenses are assigned to one program or unit.
Example: salary and electricity expenses are assigned to
general administrative services program.

15. Operational Budget Planning Worksheet
Program/ Operational Unit: _________________________

16. Managing Implementation of
Budget

17. Budget Management System
Framework
Allotted budget
Allocated Budget
from Income
Amount
Amount
Expenditure
s Working
Capital
Expenditure
s
Fiscal Year Fiscal Year
Government Model Private Model

18. Budget Management System Flow
Operations Management Budget Management Accounting Mgt
Request for Expenditure
Verification of Verify Availability
Budget Allotment of Funds
Approval of Request
Earmarking of Funds
Start of Procurement Process
Purchase Order
Delivery of Goods / Services
Obligating of Funds Account Payables
Payment of Expenditure

19. Budget Management Activities
During Implementation
• Verification of budget allotment
– Expenditure requested is within the approved budget
– Availability of funds is confirmed based on the
revenues collected and/or the presence of “Notice of
Cash Allocation” for public offices
• Earmarking of budget allotment and available
funds
– The act of setting aside specific amounts from the
available funds for possible future payments
• Obligating of funds
– The act of recognizing specific amounts from the
available funds as spent.

20. Budget Implementation Monitoring Worksheet
of a Budget Officer

21. Dept / Unit: _________________________

22. Example of a Budget Utilization Monitoring Plan
(Tools for Operations Manager)

23. Example of (Tools for Operations Mgr)