BUDGETING
The budgeting phase of the planning process resolves the question: “How much money or
fund is available for each program, project or activity?”
All decision makers and planners are faced with the dilemma of harmonizing what they
want with what their organization can afford. Every organization is faced with problem of
adjusting needs against available resources. But a problem arises when resources are
scarce but needs are great.
Definition of Budgeting and Budgeting Orientations
Budgeting is the process of allocating financial resources for intended programs, projects,
services, and activities to empower the organization to carry out stated goals and
objectives (Briones, 1996). The product of this process is the financial or budget plan of
the institution.
Budgeting concepts mostly originate from government. Budgeting approaches or modes
and techniques used in the Philippine government are characterized into three major
orientations, namely: 1) control, 2) management, and 3) planning.
Control-orientation in budgeting is the process of enforcing or applying limitations and
conditions that are set in the budget and in appropriation and at the same time securing
compliance with the spending restrictions imposed by central authorities. Managementoriented budgeting involves the use of budgetary authority at both agency levels to ensure
the efficient use of resources in the conduct of authorized activities. The focus is on the
agency outputs – what is being done and produced and what cost and how performance
compare with the budget goal. Thus, it is more concerned with operations and results that
control, that is, with the efficiency rather than the legality of expenditures.
Finally, planning-orientation in budgeting is the process of determining public objectives
and the evaluation of alternative programs. To use the budget for planning, authorities
must have the information concerning the purpose and effectiveness to the program. They
should also be informed of multi-year spending plans and of the linkage between
planning, spending, and public benefits (Schick, 2001).
Approaches in Budgeting
There are four budgeting methods used in the Philippines since 1937. Briones (1996)
enumerates these as follows: 1) line-item budgeting; 2) performance budgeting; and 3)
planning, programming and budgeting system (PPBS); and 4) zero-based budgeting
(ZBB).
1. Line-Item Budgeting
The line-item budgeting approach emphasizes listing of objects for itemized expenditure
such as personnel, supplies, and equipment without much regard for the purpose of
programs or projects for which such items are proposed. It also controls expenditures at
the department or agency level giving emphasis on the accounting aspect of the
government operations in terms of items bought or paid (Miclat, 2005).
2. Performance Budgeting
In performance budgeting, objects of expenditures are grouped into categories related to
the specific services or products an institution produces, as against objects it purchases,
and the development of product cost measurements of activities or services so that
managers can measure the efficiency or productivity of spending agencies (Ibid.).
3. Planning, Programming and Budgeting System
PPBS is an answer to the need for an economic allocation of resources and the
undertaking of government policy, program analysis, and cost utility analysis to improve
the policy decision process of government. The scheme requires agency managers to
identify program objectives, develop measuring program output, calculate total program
costs over the long-run, prepare detailed multi-year program and financial plans, and
analyze the costs and benefits of alternative program designs. The system provides a
strong linkage between planning and budgeting (Ibid.).
4. Zero-Based Budgeting
ZBB is an operating, planning, and budgeting method which requires every agency
manager to justify his entire budget systems in detail and transfers the burden of proof to
each manager why he should spend any money. It underscores the analysis of all
budgetary expenditures to answer effectiveness in achieving organizational goals. The
term “zero-based” refers to the yearly analysis, evaluation, and justification of each
program/project/activity starting form zero performance level.
The idea is to “zero-in” on only the most important activities in the program or project for
inclusion in the budget or on the least important or lowest priority activities which may
be removed in the event that resources are not sufficient. In this way, the most important
programs and projects are allocated enough funding rather than distribute the resources
thinly among the many activities and achieve nothing in the end (Ibid.).
The Budget Cycle
A budget is a financial plan. It is an estimate of institution’s income and expenditures for
a definite future, e.g. fiscal year. It is what the institution plans to spend for its priority
programs and projects. Thus the national budget is the financial translation of approved
national government plans and programs which are supposed to be supported by the
resources of the government (Ibid.).
The national government budget cycle consists of four phases, namely: 1) budget
preparation, 2) budget legislation or authorization, 3) budget execution or implementation,
and 4) budget accountability (Briones, 1996):
1. Budget Preparation
This involves the formulation or devisement of a national budget based on budgetary
priorities and activities given available revenues and borrowing limits.
The Development Budget Coordination Committee (DBCC), an interagency body,
conducts consultations and studies on fiscal and financial issues with the objective of
determining overall expenditure levels, revenue projection, deficit levels, and the
financing plan. These are then forwarded to the cabinet and the President for approval.
After approval by the President, the Department of Budget and Management (DBM)
issues a Budget Call. The call usually issued in November directs the different agencies
to prepare their respective budget proposals in accordance with approved budget ceilings.
2. Budget Authorization or Legislation
In this phase of the budget cycle, the budget is reviewed by the House of Representatives
and followed by the Senate through consultation and justification by department and
agency heads of their budget proposals. Conflicting provisions are worked out and
harmonized by a conference committee. Once a common budget bill has been approved
by both chambers, it is submitted to the President for approval. The product of the
President’s approval of the proposed budget legislation is the General Appropriations Act
(GAA).
3. Budget Execution
This phase of budget cycle is the implementation of the General Appropriations Act. The
Department of Budget and Management (DBM) implements the national budget through
the administrative supervision of the President. The Bureau of Treasury of the
Department of Finance (DOF) coordinates with the DBM so that cash releases by the
latter are based on collected revenues by DOF.
4. Budget Accountability
Budget accountability is the analysis and review of the agency operating performance,
systems and procedures, and the evaluation of agency accomplishments relative to cost
incurred. It compares actual expenditures and performance with the planned expenditures
and predetermined targets of the organization.
Expenditures by Class and Object
The national budget is allocated and earmarked for the implementation of various
government programs and projects, the operation of government offices and payments of
salaries of government officials and employees, maintenance and operations, and
payment of public debts. These expenditures may be in terms of expense class, budgetary
object, sector, and implementing unit of national government and in the region.
Briones (1969) enumerates two different expense classes and several budgetary objects
under each class. These are:
1. Current Operating Expenses (COE)
COEs are appropriations for the purchase of goods and services for the conduct of normal
operations within a budget year. The different budgetary objects are:
Nature of Expenditures
Personal Services (PS)
Object Number
100
Salaries of permanent positions
Contractual, casual, and emergency personnel
Substitute teachers
Lump sum for new positions
Terminal leave benefits
PAG-IBIG contributions
Medicare premiums
Employee compensation insurance program
RATA
Honoraria
Training and personnel improvement
Year-end bonus and cash gift
Step increment for length of service
Personnel Economic Relief Allowance (PERA)
Additional P500 allowance
Clothing uniform allowance
Student labor
Productivity incentive bonus
Magna Carta of Public Health Workers
Others
Maintenance and Other
110A
115A
115B
120C
130
320
330
340
500A
500B
600
800
900A
900D
900E
900J
900R
900U
900V
900W
Operating Expenses (MOOE)
Traveling Expenses
Communication services
Repair and maintenance of other facilities
Repair and maintenance of motor vehicles
Transportation services
Other supplies and materials
Rents
Other grants, subsidies and contributions
Water, illumination, power services
Training and Seminar expenses
Extraordinary and miscellaneous expenses
Library books and materials
Other services
200
02
03
04
05
06
07E
08
10C
14
17
18
27
29
2. Capital Outlays (CO)
COs are appropriations for the purchase of goods and services the benefits of which go
beyond the budget year which add to the government physical assets. These include
infrastructure projects such as construction of roads, school buildings, laboratories,
gymnasiums, sports facilities and others. The acquisition of equipment like laboratory
apparatuses, computer units and peripherals, duplicating machines, motor vehicles, and
others falls under CO. The budgetary objects under CO are:
Nature of Expenditures
Lands and Land Improvement
Buildings and Structures
Furniture, Fixtures, Equipment and Books
Object Number
34
35
36
Budgeting Structure and Processes
In a college or university, the budgeting process is as important as planning. But
budgeting can only proceed with a strategic plan. There has got to be a budget council to
undertake budgeting activity. But the more logical thing to do is to integrate the Planning
Council and the Budget Council into one.
Actual costing of programs, projects, and activities for annual action plans, on one hand,
and short- or long-term plans, on the other, differ. For the former, certain traditional
indicators and rules and regulations should be determined and observed, like enrolment,
class size, cost per student by educational level, and number of faculty members and
support staff.
The more radical indicators are the output- or outcome-oriented ones, such as number of
graduates who passed the licensure examinations, number of employed graduates or
trainees and others. Examples of rules and regulations are set expenditure ceilings,
moratorium on some expense class and budgetary objects, and austerity policies.
Undoubtedly, these indicators and regulations dictate the amount of budgetary
expenditures a university or college is allocated in a given year (Miclat, 2005).
For two-year and beyond plans, the more practical way of budgeting is making
projections by expense class and budgetary objects. The results of such projections would
indicate which expense classes and objects are used more often and those used sparingly
by the agency.
Projections can be made if previous data and statistics preferably during the last five
years are made available.
There are several ways of making projections. The more popular ones are geometric rate
of growth, exponential growth rate, average annual percent increase, and Sprague
formula. Depending on which type of projections one adopts or uses, rates of increases
are arrived at. Projections made under each expense class and budgetary objects as well
as on the total budget estimates for each operating year should be explained. Said reasons
should include various parameters on such areas as social, economic, political, natural
and technological. With these parameters, more realistic rates of projections can be set
and adopted (Ibid.).