Introduction
The budget cycle is the process of carrying out operations of planning and drawing up a plan for the state and its departments for a given period. It can be divided into several stages, each valuable for forming an overall operative financial management plan. This paper evaluates the budget cycle and planning methods for creating and approving an effective financial plan for the current period.
Assessing the Value of the Budget Cycle
Determining the available finances is directed to further implementation after deducting expenses. The Congressional Budget Office, the Department of Finance, and the Government Accountability Office estimate resources at the end of the next period (Rubin, 2008c). This step allows calculating the amount of money expected to be available from the activities in progress. The stage’s value is that preparing forecasts makes it possible to keep expenditures stable and poses potential threats to the budget.
The budget formulation is the evaluation of the past period, which results in income. Assumptions are made about which areas are recommended to be included in the next plan. This stage consists of forming strategic goals to be achieved in the current period (Rubin, 2008b). The purposes should be consistent with the potential income previously defined and reflect how it will be achieved (Miksell, 2018b). An essential element of this stage is planning time limitations for each goal.
The budget hearing discusses the goals, objectives, and plans to be integrated and implemented in the next reporting period. It is the task of Congress, the Supreme Court, and interested parties (the public) to discuss the proposals and make conclusions. The hearing of objectives occurs according to their degree of importance (Rubin, 2008a). The value of the hearing is determined by the need to summarize existing ideas that directly affect the business.
Budget adoption is the stage of approving previously discussed goals that received the most votes at the hearing. Ipek (2018) argues that including budget makers is essential to monitor responsibilities and make critical decisions. They can contribute their opinions as experts with reasons for their approvals. After signing, the records are sent to the ministries to inform them. The need for documentation and reporting determines the value of the budget adoption phase.
The budget implementation is the most extended phase, which will be over only by the time of subsequent discussion. The primary role is played by members who follow the budget’s goals. As the fiscal year progresses, changes to the budget may be implemented as unplanned activities (Mikesell, 2018a). These changes are adopted promptly and recorded in the same procedure but in an expedited format. Execution is initiated immediately, putting these tasks at the forefront. The value of the execution phase lies in the step-by-step achievement of the objectives.
Assessing the Value of Budgeting Techniques
Trend analysis is a technique for examining the behavior of market interactions based on past decisions. This method uses data from previous reporting periods to determine the deviation from the baseline plan in cost, timing, or content (Rubin, 2008d). In the short term, trend analysis allows for managing current prices and promptly tracking the revenue curve. In the long term, it will enable one to determine the vector of the business and the potential for the following periods in advance (Mikesell, 2018b). Consequently, it is a universal method of budget planning, as it is bi-directional.
Planning based on driving factors consists of creating a list of factors that will impact the state’s short-term and long-term goals. Driving factors are the population, the incidence of social diseases, and projected revenues and expenditures (Thesari et al., 2021). The diversity of indicators allows budget planning to be flexible and directed toward specific goals without creating gaps. Ipek (2018) argues that accounting for population and incorporating human resources into the budget plan will achieve flexibility. Public policy plays a significant role, so this planning method is effective but requires close attention to the factors.
Financial modeling abstractly represents budget execution in an actual or potential financial situation. This method allows one to define the movement of the budget depending on market conditions caused by internal or external expenditures and revenues (Johnson et al., 2021). Modeling is a mathematical method in which attempts are made to introduce as many variables as possible (Miksell, 2018a). The variables become those factors that will potentially affect the budget. The value of this method is the ability to calculate finances in an orderly fashion, depending on the market.
Four basic forecasting methods are used to determine potential conditions. Simple extrapolation is the simplest method, including analyzing historical data for the forecast. Multiple methods allow for comparing two or more variables and assessing the relationship to budget execution conditions (Thesari et al., 2021). Linear extrapolation is based on reviewing past values and projecting them into the future. The non-linear method is based on transforming the forecast and predictor variables to fit the available data into the equation (Johnson et al., 2021). Thesari et al. (2021) believe that mathematical models are not yet sufficient for sustainable development, although they may show their effectiveness in the future. The value of the forecasting method is in combining different types and the possibility of determining them depending on the state of historical and actual indicators.
Conclusion
The budget planning process consists of five stages, which smoothly flow into each other. Their value lies in continuously managing the budget based on current trends and the external and internal environment. Budget planning methods are usually trend analysis, drivers, modeling, and forecasting. Each has its value, but financial modeling and forecasting can be considered the most effective because they work with historical and current data.
References
Ipek, E. A. S. (2018). New approaches in public budgeting. In Public economics and finance. (B. Açıkgöz, Ed.). IntechOpen.
Johnson, C. L., Luby, M. J., & Moldogaziev, T. T. (2021). State and local financial instruments: Policy changes and management. (2nd ed.). Edward Elgar Publishing.
Mikesell, J. L. (2018a). Budget classifications, systems, and reform: Trying to make better choices. Fiscal administration: Analysis and applications for the public sector. (10th ed., pp. 257-308). Cengage Learning.
Mikesell, J. L. (2018b). Federal budget structures and institutions. Fiscal administration: Analysis and applications for the public sector. (10th ed., pp. 154-210) Cengage Learning.
Rubin, I. S. (2008a). Aaron Wildavsky and the demise of incrementalism. Public budgeting: Policy, process and politics (pp. 186-192). Routledge.
Rubin, I. S. (2008b). Decision strategies of the legislative budget analyst: Economic or politician? Public budgeting: Policy, process and politics (pp. 192-213). Routledge.
Rubin, I. S. (2008c). Federal budget concepts – bright line of black holes? Public budgeting: Policy, process and politics (pp. 442-474). Routledge.
Rubin, I. S. (2008d). Public budgeting: Winning strategies. Public budgeting: Policy, process and politics (pp. 171-186). Routledge.
Thesari, S. S., Lizot, M., & Trojan, F. (2021). Municipal public budget planning with sustainable and human development goals integrated in a multi-criteria approach.Sustainability, 13(19). Web.