Budget is developing a framework in which the business allocates its resources to different departments and activities to manage the cash flows of the organization. There are many types of budget. Program budget is one of them.Let us understand the definition of Program budget.
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What is Program Budget?
The program budget is a budget that is prepared specifically for a project or program. This type of budget includes expenses and revenues related to a specific project only. No revenues or expenses of any other project are mixed with this particular project.
A business has many different projects running at a single time. It becomes very important to set the goals and objectives of the individual project along with its budget. The program budget allocates resources to a project that helps in monitoring the performance of the project and brings accountability.
Let us take a Program Budget example to understand the concept in a better way.
Example of Program Budget
Xion Ltd. is into textile business. It receives multiple orders from different clients every year. One of the clients, Noble Ltd. gave Xion Ltd. an annual contract. Xion Ltd. follows and prepares program budget. Here, Xion Ltd. shall prepare the program budget of Noble Ltd. by including all the incomes and expenses related to this single project. No other project shall be considered while preparing the budget for Noble Ltd. Thus, program budget focus is on individual projects only.
Advantages and Disadvantages of Program Budget
There are many advantages and disadvantages of a Program Budget. Let us have a look at them.
Advantages of Program Budget
- It helps in determining the priority of the projects.
- It helps in planning and managing the delivery of services in the future.
- It monitors the allocation of resources to a project and how they are used to meet the goals of the organization.
- It helps in identifying areas where cost reduction can be done and savings can be made.
- It helps in spotting the areas where higher funds are required.
- It brings accountability to the organization. Since each project has its respective budget, performance measurement can be done and accountability can be set.
Apart from the advantages, there are many disadvantages of program budgets. Let us have a look at them.
Disadvantages of Program Budget
- Program budget requires a lot of information and it can take ample time to find out exact financial resources required. In addition, during the year when any changes need to be made to the resources required, it becomes very difficult to make a balanced budget.
- Sometimes, overlapping causes several changes to the budget. Like for example, the municipality department may include the electricity repair expenses in the budget, which may or may not incur. This leads to budgeting of dual expenses.
- If the program budget is incorrect, it can lead to increase in costs.
- The program budget sometimes makes it difficult to evaluate the performance of the project. Multiple layers of administrators govern a project. Finding out the actual performance of any level of administrator can become a daunting task.
Program budgets form an important part of any big organization these days. It provides the basis to allocate the resources to a project in the right manner. It not only lays down accountability but also brings efficiency and effectiveness in the organization. It helps to divide the activities under different sub programs for a particular project. Many may argue regarding the disadvantages of the program budgets. However, the advantages are much more and it helps in achieving the goals and objectives of the business in the desired manner.September 22nd, 2018