Advantages and disadvantages of a performance budgeting system, a program budgeting system, and a line-item budgeting
A major advantage of line item budget is, it is very simple to understand. There are two main disadvantage of line item budgeting. First, line-item budgets does not state what extent of service a human service agency provides, the cost of that service, the quantity of outcomes the agency accomplished, or their resultant costs. Secondly, since no information is on hand, deliberations on Resource allocation and decisions are apt to be outlined by the line-items themselves .It is unable to deal with the subjects of efficiency and effectiveness by a human service agency’s diverse programs as the information is not made a part of the budget process
Performance budgeting systems are an improvement over line-item budgeting systems and its primary advantage is, efficiency considerations such as program service, program costs and program efficiency can be compared to other programs operated by a human service agency. Another advantage is they supply information on the amount of service provided by a human service program and the program costs including determination of the cost per output or per unit of service
The major advantages of program budgeting systems are twofold. Firstly, they supply information on the amount of results accomplished by a human service program and the resultant costs, including determination of cost per outcome, and secondly they are an improvement on both line and performance budgeting by providing clients and effectiveness concerns from service and efficiency concerns.
The major disadvantage of both performance budgeting systems and program budgeting systems is that human service agencies must use complicated cost analysis techniques .A disadvantage of program budgeting systems is that good outcome performance measures are often hard to build up since several human service programs still do not have accepted outcome measures because no agreement is present among stakeholders.
Question Exercise 11.1
The child and family government benefits seminar was such a success that Advocates
for Children will conduct a second seminar in an adjoining community. The
executive director decides that this second seminar will attempt to maximize revenues.
Consequently, no reduced fee schedule will be offered. All trainees will pay
the full seminar fee. The seminar will take place in a smaller conference room than
the earlier one. The room can only accommodate a maximum of 45 trainees. Here
is the proposed budget for the seminar:
Proposed Seminar Budget
1. Conference room rental $175.00 $ 175.00
2. Audiovisual equipment Rental 75.00
3. 4 presenters @ $500 2,000.00
4. 45 workbooks @ $15 675.00
5. 45 lunches @ $12 540.00
6. 45 coffees @ $3.50 158.00
Subtotal $3,623.00
7. Indirect costs @ 25% of $3,675.00 $ 906.00
Subtotal $4,529.00
8. Profit margin @ 5% of $4,594.00 $ 227.00
Total $4,756
You are the executive director. Following the checklist in Figure 11.1, perform
all the computations necessary to set a fee. What will your fee be? What is your
break-even point? What is your go/no-go decision point
Answer
Fixed cost-
Conference room rental $175.00 $ 175.00
2. Audiovisual equipment Rental 75.00
3. 4 presenters @ $500 2,000.00
Indirect costs @ 25% of $3,675.00 $ 906.00
margin @ 5% of $4,594.00 $ 227.00
sub total 3383
Variable cost
45 workbooks @ $15
5. 45 lunches @ $12
6. 45 coffees @ $3.50
sub Total 30.50
Computation of Seminar fee
Using 30 trainees as breakeven point
XP = A + BX
30P = 3,383 + 30.50(30)
30P = 3,383 + 915
30P = 4298
(Divide both sides by 30.)
P = $143.00
Ans: Fee per trainee =$143
Break even point and no go decision point is 30
If a minimum of 30 full-pay trainees attend the seminar, Advocates for Children will at least break even on the seminar. If more than 30 full-pay trainees attend the seminar, the agency will make an additional profit
Question Exercise 11.2
As the executive director of Advocates for Children, you have had a change of
heart. You decide not to attempt to maximize revenues in this second seminar. You
decide to exclude a profit margin in the fee computation, but you will include indirect
costs. Additionally, the local United Way in the community hosting the seminar
has guaranteed 45 participants. If fewer than 45 participants register for the
seminar, the United Way will make up the difference. In exchange for this guarantee,
the United Way has asked you to set the seminar fee as low as possible. Following
the checklist in Figure 11.1, perform all the computations necessary to set a
fee. What will your fee be?
Answer:
Conference room rental $175.00 $ 175.00
2. Audiovisual equipment Rental 75.00
3. 4 presenters @ $500 2,000.00
Indirect costs @ 25% of $3,675.00 $ 906.00
total 3i56
Variable cost
45 workbooks @ $15
5. 45 lunches @ $12
6. 45 coffees @ $3.50
Total 30.50
Total number of trainees is 45
45P = 3156 + 30.50(45)
45P = 3,156 + 30.50(45)
45P = 3,156 + 1372.59
45P = 4548
(Divide both sides by 45.)
P = $101.00
Ans: $101 fees per trainee