The process of performance budgeting entails evaluating an organization’s performance within the context of the organization’s particular objectives as well as its overarching goals.
To do this, there must be no ambiguity whatsoever on either the short-term or the long-term goals of the company. It is important that the different levels of management have their responsibilities clearly defined, both in terms of the outcomes that are expected from them and the power that is delegated to them.
To put it another way, performance budgeting necessitates the assignment of specific responsibilities to each executive inside a company as well as the ongoing evaluation of that executive’s work. It is for this reason that responsibility accounting is believed to be identical to it.
Purpose of Performance Budgeting
The goal of performance budgeting is to stay focused on the work to be performed and services to be given, rather than on the expenditures or acquisitions. In performance budgeting, the focus shifts from input control to the economical and efficient management of activities and goals. It attempts to link the inputs of expenditures with the outputs of achievement in terms of services, benefits, and so on.
In performance budgeting, the goals of the budget makers and the assignment of tasks and subtasks for achieving the established objectives must be determined well in advance of budgetary input allocations. Each homogeneous function is subdivided by many subsidiary functions.
Therefore, performance budgeting is seen as a budget based on functions, activities, and projects and is connected to a budgetary system based on objective spending categorisation.
Features of Performance Budgeting
The core features of performance budgeting are as follows:
- A budget is developed for each level of management. The relevant manager is held liable and accountable for his performance at his level throughout the stipulated time period.
- The jurisdiction and accountability for various expenses within the supervision of the relevant executive are established. In other words, each person is liable for just those expenditures that are within his control.
- The responsible executive is endowed with the authority necessary for the given responsibilities.