Types of budget

Budget is a financial statement that coins down the expected revenue and
expenditure of a particular fiscal year. There are different types of
Budgetthat may be discussed in the following section:

Revenue budget:
It consists of the revenue receipts both tax-revenue and non-tax
revenue and the expenditure met out of the revenue receipts. Revenue
expenditure is further divided into plan and non plan revenue
expenditure. Plan revenue expenditure pertains to central plan and
central assistance for states and union territory plans. Non plan
revenue expenditure covers a wide variety of general, social and
economic services of the government. The major items of non-plan
revenue expenditure are interest payments, defence services and
subsidies. Capital budget:
It comprises capital receipts and capital expenditures of the
government. Capital receipts include market loans, borrowing from
RBI and others. Capital receipts of the government are those which
create liability or reduce financial assets, while those expenditures of
government which lead to the creation of physical or financial assets
or reduction in recurring financial liabilities fall under the category of
capital expenditure.
Such expenditures pertain to payments on acquisition of assets like
land, buildings, machinery, equipment, etc.

Legislative and Executive Budget:

A legislative Budget is prepared by the various committees appointed
by the legislature from among its members. An executive budget, on
the other hand, is the one which is prepared by the executive branch of
the government. Such a budget is normally passed and adopted by the
legislature but the initiative is in the hand of government.
Conventional and Cash Budget:
In the conventional budget, revenue and expenditure are shown on
accrual basis and those flows of funds are excluded which do not
belong to the government. In the cash budget, all the flows of funds to
and from the government on actual payment basis are shown,
inclusive of funds which are not owned by the government.
Unified and Multiple Budget:
In USA, there was tradition to present budget into parts, to make it
possible to evaluate specialized functions of the government. But it is
felt that true fiscal operations of the government gets scattered and
difficult to trace in case of multiple budget.
Thus, the best way is to present unified budget in which important
sub-portions are classified, and presented separately.
Budget of the Union Government in India:
In India, the Constitution demands that the budget must distinguish
expenditure on Revenue Account from other expenditure.
Accordingly, the budget is necessarily presented into two parts,
namely Revenue Budget and Capital Budget.

 Corporate Budgets: formulate the annual fiscal agendas, plans and

programs of a commercial organization. It works for putting forward the
expected income and expenditure figures of a company, for the next financial
year.
Performance Based Budgeting

Performance Based Budgeting (PBB) is done for the public sector companies.
Performance Based Budgeting is neither mere information about the
program-related performances of an enterprise, nor information about
the decision of resource distribution. Rather, it is a process of assessing
the overall performances of a company.
A Performance Based Budget comprises an annual, integrated performance plan, indicating the
relationship between the levels of program funding and the anticipated outcomes. It refers to a single
or a set of performance target(s) which must be achieved at a given expenditure level. On an official
level, Performance Based Budgeting relates the appropriations or expenditure targets with the
performance targets. The jurisdiction passes on the implementation of Performance Based Budget to
organizations like:

Department Reallocation "Crosswalk" Clinics

Reallocation Workshops

Accounting and Budgeting Systems Design

Reallocation Project Design

Accounting and Budgeting Systems Assessments

Performance Based Budgeting: Some views

From the comprehensive definition of Performance Based Budgeting, as provided by Segal and
Summers, the process considers three different elements prior to the formulation of the budgetary
document. They are as follows:

The ultimate outcome of a particular performance

The strategies, that is, the diverse means of attaining the final result

The activities performed, in order to achieve the final outcome

From the above-mentioned elements, one may notice a link existing between the principles of specific
actions and the final outcomes. The cost-effectiveness of the various actions can also be understood

and judged, to attain a desirable budget. Hence, as per the definition, Performance Based Budgeting is
one of the best methods of distributing financial resources, for attaining certain specific objectives.

Nature and process of Performance Based Budgeting:

As a fresh and somewhat different budgeting method, Performance Based Budgeting considers all
conventional methods of scrutinizing and using the budgetary documents as insufficient, timeconsuming and obsolete. Moreover, the Performance Based Budgetary approaches are also far more
superior and contemporary in nature than the traditional ones. For instance in case of governmental
projects, the Performance Based Budgeting system facilitates the government to decide the objectives
of the projects undertaken, determining the type of activities required to accomplish them. All such
activities or performances have considerable expenses involved with them. Hence the long-term
projects are disintegrated in the form of annual Performance Based Budgets, which incorporate the
financial figures.

Functions of a Performance Based Budget:

A Performance Based Budget informs the public about the total expended amounts on various
services, as well as the anticipated benefit which the buyers will derive. It informs the people about
the possible destinations where their expenses go, along with the cost of the expected benefit.

A Performance Based Budget permits the policy and decision makers like executives, elected
officers, budget officers, managers and others to have a transparent view of the trade offs between
alternative expenditure plans, thus, making more up-to-date, beneficial and effective allocation of
the financial resources.

Zero Based Budgeting

Zero Based Budgeting (ZBB) is a technique of making plans and taking

decisions, which overturns the working procedure in traditional
budgeting. In case of Zero Based Budgeting, the function of each and
every department is analyzed and evaluated in a comprehensive manner,
and all expenses increase only after such approvals. When discrepancies
arise, Zero Based Budget requires detailed justification from every
divisional manager, starting from the lowest levels, called the Zero-base.
The Zero-base is however, least bothered about the overall increase or
reduction of the budget.

Activities of Zero Based Budgeting:

Zero Based Budgeting is useful for personal finances, as it describes the budgetary practice
and calculates figures on per unit accumulation of money

Different financial groups prefer Zero Based Budgets, for assured control on useless
expenditures. This is precisely why it has retained equal popularity in both public and private
commercial sectors, ever since its conceptual inception.

The preparation of Zero Based Budgeting is supported for the sake of Government Budgets.
Here the expenses tend to become uncontrolled, in trying to maintain parity between the spendings
of the last and the current years. In other words, the justification of a project on government levels
is done by this budgeting procedure.

Zero Based Budgeting offers an overview of the projects with their previous costs, by
dismissing the earlier ones.

What is so beneficial about Zero Based Budgeting:

Enhances coordination and communication within the enterprise, for positive effects and better
output levels

Provision for more schemes and responsibilities, to further encourage the staffs

Compels the spending centers to understand their missions and their inter-relationships, for
achieving overall goals

Acts as a driving force for managers to search for cost-effective measure to develop the
operations further

Quick identifications and immediate eliminations of unused and outdated operations

Recognizing opportunities for financial outsourcings

Used extensively in the service sectors and departments for easy identification of the outputs

Helps in the detection of inflationary budgets

The financial resources are efficiently allocated, on the basis of requirements

Zero Based Budgets: Criticisms

No proper training of officials on the managerial levels.

In the micro-management levels, Zero Based Budgeting spends the least amount of time on
issues that really affects the development and progress of a company, and meddles with trivial
issues, which may or may not have any effect on the operations of the company.

Forceful justification of all expenditure details is demanded

Incremental Budgeting

In case of Incremental Budgeting, the resource allocation is dependent on the

money distributed at the time of the last budgetary period.

Incremental Budget is steady in nature, characterized by gradual changes

The changes introduced in an Incremental Budget are easily visible.

With an Incremental Budget, it is easy to synchronize between different other budgetary

documents.

The total concept of Incremental Budgeting is simple and easily comprehendible, hence
operation-friendly in nature.

Incremental Budgeting helps the managerial level officials to operate consistently in their
individual departments

Incremental Budgeting : Drawbacks

Incremental Budgeting encourages a "spend it or lose it" attitude, which makes it difficult to
maintain the terms and conditions of the budgetary document.

The failure of Incremental Budgeting approach lies in not considering the changing economic
circumstances.

Previously, the managers were habituated in overestimating their needs, to make an

Incremental Budget all the more user-friendly in nature. These yielded favorable outcomes.

An Incremental Budget tends to become obsolete quickly, when it does not associate with the
existing work type or activity level.

The assumption on the part of Incremental Budget that the modes of operation and activities
will remain the same all throughout is incorrect.

There are no declarations of incentives, as far as the initiation of cost reduction is concerned.

Changes in the resource priorities, from that which is originally set, tends to create discontent
and confusion.

The in-built budgetary slack or relaxation is rarely reviewed.