Finance and budgeting.

Introduction. Of all the areas of managerial functioning, budgeting and the control of financial matters is the area about which most human services managers, especially those that have come to management from direct service practice, express the greatest fears. White has suggested that there are two main reasons why human service managers, in particular, have difficulty with the budgeting function. The first of these is the belief that if one is concerned with the welfare of clients and with maximizing good, then to be concerned also with finances and the cost of programs is inimical to effective thinking about service delivery and about meeting client needs. The second reason put forward for the discomfort that many managers feel with the area of operation is related to the perceived technical nature of the enterprise of managing the finances of an organization.| For many managers who are quite comfortable with the overall concept of having to manage finances and do not see this as a challenge to their integrity as service providers, there is still a lot of fear and uncertainly in this area because of the perceived difficulty in mastering some of the tools of the budgeting process.| We are approaching the discussion on finance and budgeting from a perspective that there are some aspects of the process, that are, in fact, highly technical, and that managers often do not need to know the minutiae of these operational technicalities. However, if a human service is to manage the organization effectively there is a minimum level of competence required in relation to finance and budgeting. This technical knowledge may simply be a matter of knowing and being able to use the appropriate language. It does not always involve being able to use new techniques or new concepts. | The objective of budgeting. A numbers of commentators on human service management have suggested that these are different ways of conceptualizing the overall budgeting process. Weiner, for example, has argued that there are a number of perceptual orientations to, or aspect of, the budgeting process. He suggested that the budgeting process may be conceived of as a political activity: as a statement of policy, the budget is a political document that defines strategic roles for the organization; sets service levels; adjusts the economy, shifting resources from one sector to another and/or adding value to the economy; and defines the parameters for the execution of programs. | Wildavsky, in a detailed argument about budgeting is a political process, suggest that budgets are political documents and budgetary decisions answer the central political question of who gets what, when, how?. In essence budgeting are documents that describe items of expenditure; or purposes; and figures are attached to each item or purpose. If the connection exists between what is written and what will happen, then a budget becomes a link between financial resources and human behavior to accomplish objectives. As funds are limited and have to be divided among competing uses the budget furthers becomes a mechanism for making choices among alternative expenditures. When the choices are coordinated to achieve desired goals, a budget reflects a plan. These are planning decisions, stated in monetary terms. |

Although a purposed budget represents the expectations and aspirations for a program or organization, a budget request is very often a strategy as well. Each person in the budgetary process receives information about the preferences of others, and such information indicates the desires of others. What emerges is a network of communication. | The actual process is discussed later, but it should be recognized that the amount of information sharing depends a great deal on the organizations philosophy of sharing. One of the objectives in budgeting is to enable those who produce the service to understand what is happening to money so that they can accept allocations. Yet secrecy in budgets has become a way of life in some organizations. In one institution, two senior executives, the supremo and the finance manager, prepared the budget themselves and various department heads lobbied these two, as well as presenting their written submission. The climate was one of competition and suspicion. | The two members who are the final arbiters insisted that open discussion would be interminable and that it would consist of ambit claim with no-one prepared to give ground. It was claimed that the overall good of the organization, that is to achieve the organizational goals, would never override selfinterest. It is not surprising that this organization had a management crisis, and that vary processes were a particular source of dissatisfaction. Because money is involved, the participatory processes normally, expected of a human service organization should not be sheived and, in fact, become even more important. | Equally significant is the fact that a budget, once enacted, may become a precedent, particularly in incremental systems. The fact that something has been done once vastly increases the chance that it will be done again and often only substantial departures from the previous years budgets and scrutinized. The erroneous perception of budget primarily as an accounting process is more readily held by those human service managers who, rather than focusing on resource investment or expenditure, on effective programs, focus on resource itself. They are concerned with questions such as is it available?. This entails a concern with the flow of funds into and out of the agency. From a program management perspective, budgeting must be tied to other administrative functions that will be aid the process of ensuring the organization is on schedule with program service and cost objectives, and will contribute to an agency review process. |

Role of financial and program managers. One of major problems in human service organizations in relation to budgeting has been the them and use scenario. The finance side sees the service providers as unrealistic spenders who need to be controlled, and the service deliverers see the finance side as bean-counters obsessively concerned with unnecessary and arbitrary cost-cutting. Costing is confused with budgeting, and money and figures assume mystic qualities. As will be reiterated here, budgeting is a planning process in involving many people. The manager who produces is advised by a finance manager. | Sometimes the finance function in human service organizations is carried out by people who are primarily bookkeepers, who do not have knowledge of the broad rule of an accountant, apart from not having a knowledge and commitment to the organizations service delivery goals. If the program

or product manager also is not always familiar with or committed to the service delivery of the organization, the result can be disastrous for the goals and objectives of the organization. This is discussed further when costing and budgeting are considered and it is important to clarify terms, as those too are often confused. | Exhibit 9.1: Definition. Budget are: - A link between financial services and human nehaviour ro accomplish objectives - Documents that describe items of expenditure or purposes with costs attached to each item or purpose, therefore Dollarized plans Line-item: designated item which are given a cost, and are part of every budget no matter what planning process is used. Line-item budget is a term sometimes used for budgets that do not go beyond a line-item approach. Costing: the process of placing the cost to the line-item. Incremental budgets: a framework for monetary input expenditures in which expenses are grouped into certain line categories. Inflationary elements are added as required. Incremental budgets are more often defined in terms of what they are not than what they are. | Planning programming budgeting system: costs are grouped in terms of the estimated costs of the output programs, which are defined as a result of planning and take account of goals and objectives. These in turn require establishment of priorities and evaluation of past performances. Program budgets: the term used for a wide variety of.varying from slightly disguised incremental budgets (input..into programs, to those which have the same principles ..performances and output as in PBBS, but with less attent.less complicated or comparative cost analysis. Zero-based budgeting: allocation based on project.decision packages that are analysed, evaluated andimportance. The going back to base and ranking at eachcharacteristic of ZBB. |

Budgeting and managerial function. Planning as a basic for budgeting. Many of the standard organizational and management texts suggest that budgeting is the essence of managerial control. However, budgeting is not only an important aspect of the control function of management, but is one of the most important and essential ingredients of the planning function. Indeed, Koonzt have suggest that: budgeting is the formulation of plans for a given future period in numerical terms, but budgets are statements of anticipated result in financial terms as in revenue and expense and capital budgets or in non-financial terms as in budgets of direct labor hours, materials, physical sales volume, or units of production. It has sometimes been said for example, that financial budgets represent the dollarizing of plans. |

Hicks and Gullet suggest that, a planning tools, budgets require that managers think through the objectives and other plans thoroughly enough to be able to express them in define numerical amounts. As budgets are statements of future expenditures of the organization, they force an allocation of scarce resources on the basis of priorities. Budgeting reinforces the view that any organization has a finite amount of resources to commits to it programs and that, usually, decisions about allocating funds involve decisions about priorities. Managers therefore must decide which activities are more important, in relation to which target group and for how long, and reflect this in the rankings given to various programs in terms of the resources allocated to those programs. |

Attitudes to costing and budgeting and their consequences. Budgets provide one sort of tangible and readily measurable standard against which to compare result. For example, it is possible to see whether an anticipated result has been achieved at the cost for which it was assumed that it could be obtained. There is little doubt that this is one of the factors that both front-line human service workers and human service managers find difficult. There is often a fear and denigration of an approach that is seen to be driven primarily by financial imperatives. This becomes particularly relevant in funding cutbacks, when funding agencies make a point of demanding that programs be defended on the basis of their cost-effectiveness as well as their service-effectiveness. | Because budgets and cost accountabilities are stressed at time of financial stringency, those at the operational level are not convinced that the motive of upper levels is to improve services. The same applies to program planning. If attempts at change were made when money are not scarce, when saved resources could be put into retraining, the claim that the service might be improved by more efficient methods would not be regarded so cynically. There also still exists a belief, acquired by some managers in the day of less stringent funding, that there ought not to be financial constraints on the operating or introduction of programs. That is, if the program is of value, new funding should be found for it. There is another believe that program planning decision are made on an either/or basis, in which program viability is judged in financial or ideological ground alone, and not on a combination of these factors and others such as need. | Human service managers need to know and understand something about macro financial matters as they affect the operation of their agencies. These include funding principles and practices, but they probably do not need to know the details of some aspects of financial planning and operation. However, they must be able to use the language of financial planning, have enough knowledge to make the costing issues work for them, and at the same time not make avoidable errors or become consumed with detail. | An important example of the type of error sometimes made in the human service area is the inappropriate attempt to argue the merits of an intended or actual program on a cost-saving basis, without any evidence that the claims are justified. This is especially relevant to preventive programs, where possible outcomes are often difficult to prove. Examples, such as the family support grant program at community services Victoria, or the equivalent material aid/financial assistance programs of other agencies, illustrate the difficulties. If the argument for provision of such aid is that it will prevent children for becoming state wards and save the government money in the long run, this must be demonstrated by careful research that shows that the intended effect is achieved. |

This point relates to a later comment about arguments being put forward concerning the saving of costs because these are seen as the only ones that will be accepted. The argument backfires when a program is challenged as a cost-saving device, and this claim cannot be proven. Similar arguments and claims were made, and raised false expectations, about community health centers causing a drop in hospital admissions. | One of the dangers of using costs argument is that many human service workers rely on the fact that it is very difficult to work out accurate comparative costs for many human service programs. Examples can be found of claims that, for example, marriage guidance programs save money because they reduce the amount of juvenile delinquency brought about by broken marriages. Other claims have been made that probation and parole services cut down the incidence of recidivism in the prison service and therefore decrease the costs of keeping people in prison. When simplistic aims existed, it was easy to claim success. |If the goal of marriage guidance was stated to be reconciliation and keeping marriage intact, then assessing their success and fulfilling the demand was relatively easy by counting the number of reconciliations. If the success of a program is seen in such factors as improved communication or improvement in relations, measuring these results becomes a major task. |

Philosophical and ideological aspects. There can also be a perception that costing itself is a philosophical issue: costing practices may be dehumanizing. That is allied to an attendant fear that the result of costing will be inappropriate management decision, and cheaper methods will be given priority. Costing is a tool in the process in budgeting a collection of factual information necessary for budgeting while budgeting is a part of a planning operation. They both require quite different skill. The problem is that costing may become an end in itself and may be criticized or applauded as if it existed in a vacuum. Costing exercises are often at fault because of the use to which they are put. There many of course be criticism of the techniques used, but that is a different issue. | There are examples of costing exercises that have aroused criticism, bur also demonstrate the complex nature of the relationship between costing and budgeting and the difficulty of the concept of cost efficiency. | One example of a criticized decision was when one large family service agency decided to reclassify position so that personnel were less costly, by employing case aides or welfare worker instead of social workers or psychologist. It was thought that such a reclassification could harm the client and that such harm could outweigh any savings to costs, taking account of overall priorities and financial resources available. Supervision costs were higher, and there was a lower retention rate of clients in the program, so that the initial aim of providing a cheaper but no less effective service was not met. | Another agency insisted on forms of practice that it defined as more cost-effective, for example, family therapy, and group work should be undertaken, rather than individual counseling of casework, because one would thereby be able to reach a larger number of clients with the same expenditure of staff hours. The issue is whether that particular program provided as effective a treatment program as the individual counseling. It also concerns the priorities and philosophy of the organization, such as the problem of number and/or quality a constant one in human service

organization. | In an extended care community program a decision was made between two alternatives, to give a rolls Royce service to a proportion of clients, or to give a lesser but reasonable service to all clients who applied. Within the available resources it was clear to the agency staff that they could not give a maximum service to all. The agency stated that its decision was quite clearly different from other extended care centers, which opted for a solution closer to the first option. This decision, although based on a comparison of costs, was not in itself a costing decision but a program planning and, ultimately, a budgeting decision which sought to implement a commitment to a specific approach to equity in service provision. | As another example, a community based health care agency insisted that preventive community development work, rather than family or group intervention, ought to be undertaken. That was not on the basis of being a sounder from of intervention, in relation to the designated problem area, but again, because it, was seen as primarily a costs-effective device. It was considered that, for the same expenditure of staff resources, many more people were being reached and that this would prevent them eventually becoming consumers of labor-intensive, individualized counseling services. | These three examples illustrate very clearly the fact that costs enters into all program decision. One of the problems has been, as mentioned earlier, that some managers in the human service area have denied the significance of costs and that they see insistence on what should be a normal managerial process as a negative consequence of a new type of managerial functioning. Sometimes this negative response is brought about by dishonesty at various levels represented by the lack of clarity in stating whether an exercise is based on costs issues, and therefore spreading the costs in a different way or is based on philosophical or other grounds. There is fairly widespread cynicism among many human service workers who have to implement programs in which they see obvious costing issues dressed up as ideological issues or where there is a grey area between the two that is not acknowledge. | An example would be some aspects of the Home and Community Care Program operated by the federal government in recent years in Australia, and its attendant and generally accepted philosophy of deinstitutionalization. This process shifts the burden of resourcing care of the elderly and the disabled from the federal to the state government, local government and the family. Unfortunately there is also a widespread belief that such deinstitutionalization saves money for the governments concerned particularly the federal government. | The belief that the community care of those unable to care for themselves without assistance is less costly than governmental or institutionalized care is an important aspect of budgeting and costing. It illustrated the lack of information available about costing exercise and, particularly, the lack of knowledge shown in costing attempts that are not simple and physical. It is relatively easy to count bed states and to compare costs of institutional care, where the latter have to be spread over a combination of services such as home care nurses, nursing aides, doctors visits and other health care visits, as well as the opportunity and time to costs of a wide range of relatives and cares. It is also much more difficult to assess long-term costs. |For example, does home care improve the quality of the care and/or does it delay admission to an institution as well? So far there are view reliable costing exercises to justify comparison. Also, if caring for an elderly relative hastens the carers need for medical treatment or even admission of the care to institutional care; can the overall program be regarded as cost-efficient? This leaved aside the issue of its effectiveness in terms of the goals and philosophy of deinstitutionalization. |

It is easy to see why there may be high levels of resistance to thinking about and undertaking budgetary, financial and costing exercises in human service organization. It is also clear that there is no escaping the importance of the function. The concept of the stewardship of public funds may be seen as central to non-profit organization. This notion is an essential aspect of the accountability of human service organizations, but not one that sits easily with many human practice practitioners. An additional element in human service organizations is the use of large amount of volunteer service. It is extremely difficult to cost the contribution of volunteers, and the unpredictability of their availability adds to forecasting problems. | There has been a great deal said about the change in patterns of volunteering and quite unrealistic assumptions are sometimes made by top-level planners about the way volunteers can be used and the cost of their service. The cost of training and coordinating volunteer services is often underestimated. There is also strong belief that speaking of costs of volunteers in unfair: if these people give their services, we shouldnt talk of costs. |

Budgeting and its relationship to programming. Vinter and Kish, in one of the most extensive discussions of budgeting in non-profit and, particularly, human service organization, wished to make a distinction between budgeting and programming, and to explore their relationship. They believe that the conventional view is that budgeting and programming activities have become separated in most agencies. As a result of this separation, they state that budgeting and programming not only represent different lines in effort, but are often competing and frequently antithetical. Exhibit 9.2 summaries their view as to why perception of separation occurs. | Vinter and Kish go on the argue that, rather than dissonance which many people believe exists between the two areas of budgeting and programming, the two are so closely intertwined as to constitute parallel and complementary aspects of agency functioning. They suggest a number of reasons for this, which are noted as Exhibit 9.3. | Exhibit 9.2: budgeting and programming: condition giving rise to perceived differences. Divisions of labor and structures within agencies result in separate units with different personnel working in either one or the other area, having limited interchange and understanding little of each others work and significance. The specialization in background, experience, and particularly in training, of professional personnel in the respective areas underscores these divisions. For example, in many human service agencies, the accounting and service staff pursue different, established career lines. Differences in the daily routines, tasks and problems tending to segregate staff assigned to programs and services from those assigned to fiscal duties. The things these groups work on and think about seem quite different, and their terminology and rhetoric have often been mutually unintelligible. Program personnel focus on interaction with clients, fiscal personnel focus on numbers but both must contend with endless forms! | Mounting retrenchment pressures, resulting in declining and more precarious support for service programs. These harsh realities pervade the climate of all agencies, and segmented staff groups are pressed towards more severe choices and actions, which are often interpreted as confirmation of existing mutual suspicions; thus, protagonists of supposedly

competing areas come to see themselves and each other in more extreme terms as realists or people who care, as hatched men or victims. Such view are further exaggerated when political discourse at the national level seems to pit fiscal responsibility against service programs Higher-level administrators, too, are frequently sequestered and communicate little to subordinates; they sometimes even stress the difference between staff groups. | Exhibit 9.3: Arguments for the complementarity of budgeting and programming. Budgeting and programming are always joined at the upper and highest levels of authority. All major and many less important budget or program decisions unify or reconcile choice about which programs will receive what resources, thus bringing about compromises among competing demands and priorities and channeling scarce resources accordingly. Every decision of consequence for either budget or program typically has comparable import for the other. Many of the newer budgeting approaches actually combine budget and program matters: in functional budgeting and performance and zero-based budgeting, the forms, projections, decisions and reports link or fuse them so that they cannot be disentangled. These interconnections are facilitated by modern information systems that enable the rapid merging of data and permit syntheses between estimates, analysis and reports pertaining to both areas. | This need for integration is a point made often here. Many Catch 22 and otherwise negative consequences can be seen in the artificial separation of budgeting and programming. As Vinter state, they are joined at the upper level, but interlocking at the lower levels is regarded as either undesirable or too complicated or difficult to achieve. Attempts are now being made to devolve budgeting decisions onto lower levels in many human service organizations, but this requires the learning of new skills and a change of attitudes. Some practitioners do not want the responsibility of budgetary decisions, nor do they want to have the monitor their costs. It is easier to leave money matters to those at the top, and then feel free to criticize monetary decisions. One of the results of this neglect is that the vital information necessary for effective budgeting, and from all levels, is not forthcoming.| Often, exaggerated claims about the benefits of certain sorts of programs reveal the paucity of data and lack of research and evaluation skills in many human service fields. This is exemplified by the lack of interrelationship between the following organizational activities, such as: the evaluation activities of the organization the management information system, which provides much of the data for this evaluation the budgetary information, which is one of the sources of information used in devising strategic goals. | Costing and its relationship to budgeting. Just as we have noted that planning is the overall process of which budgeting is a part, costing is to be seen to be a part of the boarder process of budgeting, and in this sense is a technical process. It is importance to make the distinction between budgeting and costing that we made earlier, in that

arguments for the generic manager in human service organization, rather than in human service specialist, are often made on the basis that these are people who understand costing. This view mistakenly sees costing as the more dominant process, and note as a tool with which to carry out budgetary policy. | Placing in monetary, figure on an item is often difficult in the human service. One particular area of confusion is between money, time and opportunity costs. If all activities could be time measured and all were of equal value in their ability to contribute to achieving the organizations goals, then placing a monetary figure or costs on an activity would be much easier. One often hears the statement, We are all sitting around talking at this meeting, and it is costing X amount, talking the salaries at so much per hour. This is a distortion, as it would only be costing the organization that amount if an equal activity of the same value were being sacrificed and if the meeting were completely non-productive. | If in fact those at the meeting make up this time, by working harder or longer hours, then it does not cost the organization in the way calculated. That is, it depends on what would have been done in the displaced time. If it was a leisure pursuit forgone, it is a personal opportunity cost and not a money cost to be organization. It should be recognized that opportunity cost is a planning issue, that is, what opportunity was forgone, how that affected the product/service delivery, and how it is balanced against the contribution to product/service delivery made by the activity. Opportunity costs are not considered in budgets because they are not dollarizes. | Saying something costs the organizational infers a negative cost. Problems arise for human service workers when they see time spent in meetings are less valuable than time spent in service delivery and therefore talk of cost as if allied to waste. Some meetings clearly are a waste of time, as we suggested in our discussion of communication. There is little pint in using a complicated process, such as a group meeting, to convey routine information that could have been conveyed by memorandum. But workers also need to recognize time spent in program planning meetings, for example, as making a contribution to the equality of service to clients and not see the time spent as a distraction from service delivery tasks. It is matter of priorities and balances. | There is also a tendency to speak of financial management as if it were a functional entity separate from management in general. A manager will be concerned with managing a number of resources. The managing of resources is often divided into: money resources finance human resources personnel physical resources buildings In a small organization, managers have often to manage all the resources and call on experts when their own technical knowledge is lacking. This is one of the fascinations of a small organization, and one learns to become knowledgeable on an extraordinary variety of resources. One of the skills also is in developing a network of assistance to fill in the gaps. Use of part-time advisers becomes a significant feature in smaller organization in particular. The manager is still making budgetary decisions that involve money but may need bookkeeping assistance to costing, recording and monitoring expenditure.|