Budgets

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Budgets

• IS 208A

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What are the organizational functions of budgets?

• Budgets as a planning process
• Budgets as a priority setting process
• Budgets as a resource allocation process
• Budgets as a responsibility allocating process
• Budgets as an evaluation process

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Uses of Budgets

• Budgets can be useful
• To provide overview
• To help allocate resources
• To determine leverage points
• In financial control

4
Budgets have a political side

• Budgets are political documents and are often
  part of political processesinternal external
• Especially in choice of aggregation
• In focuschanges versus totals
• Accept the status quo vs.
• Zero-based budgets
• Functional vs. Divisional

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Role of Costs (again)

• Budgeting often involves (arbitrary) allocations
  of joint costs
• Frequently through the use of "overhead rates"
• Budgeting ? Costing ? Pricing
• (Remember the telephone leased line example)
• UCB per-line telephone and per-node data charges

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Budgets reflect industry type

• 1. Governmental agencies non-profits
• 2. For-profits
• 3. Startups

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Agency non-profit budgets

• The Civil Service Model most of the resources
  are committed to staff, therefore the budget
  issues tend to concern priorities for one-time
  money (grants, gifts, capital spending).
• Budget cycle once a year
• Causes difficulties for strategic (multi-year)
  planning
• Implementation decentralized to "professionals

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For-profit enterprises

1. Two flavors of money revenue and investment.
2. Budgets do not allocate "money," but allocate
   revenue projections.
3. Quarterly review of revenue vs. projections,
   continuous evaluation and problem solving.
4. Performance against the budget determines rewards.

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A startup model

• Funding from VC in a series of rounds of
  funding -- each with defined, measurable goals
  -- through an evolutionary path.
• Friends family
• Angel
• First round, second round
• buyout or IPO
• CEO goal drive valuation

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Flavors of money

• Source and restrictions
• One time and recurring

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Technology budgeting

• 1. Startup Defining the product
• Differentiating brand
• 2. For-profit Controlling/reducing costs
• Analysis of whats going on
• New products
• 3. Agency n-p Improving service
• Controlling/reducing costs w/o reducing
  staff

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Planning horizon motivation

• Startup differentiating brand
• creating market
• For-profit controlling costs and maximizing
  profit for shareholders
• Agency n-p Quality of service, as defined by
  professionals, not customers

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Incentives

• 1. Startup Valuation of options
• 2. For-profit Bonus
• Raises
• Promotion
• 3. Agency n-p Professional ethics, job
  security