UNIT 9 SCHOOL BUDGETING AND

Structure
9.1 Introduction . I
9.2 Objectives
9.3 School Budget: A Concept
9.4 Methods of Budgeting
9.5 Preparation of Budget
9.6 Administration of the Budget
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9.7 Let Us Sum Up
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9.8 Unit-end Exercises I
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9.9 References and Suggested Readings
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9.1 INTRODUCTION

9.2 OBJECTIVES
After studying this unit, you should be able to:
explain the concept ofrbndget;.
state the needs of budgeting;
describe the methods of preparing a budget; ,

discuss the stages of budgeting;

explain how a budget is administered.
 Economic Efficiency and A budget is a fiscal plan formulated to reach the goals of the school. It is a to01 of
Educational Effectiveness
great importance for exercising financial control. It reflects the aspirations of the '

school and the financial means to fulfil them. As you know planning is fundamental to
management since it involves the control and manipulation of the relevant variables
and reduces uncertainty. Hence a budget expresses the plans regarding all the operations
to be undertaken along with realistic estimates regarding the expenses that would be
incurred to undertake these operations. Since the operations are either yet to be
undertaken or are those that have already been undertaken but require to be continued
in future, therefore budgets are futuristic in nature.
A budget is thus the main framework for financial management of schools. It provides
the essential pathways through which the financial resources 'of the school could be
harnessed for attaining the objectives that have been set (Enaohwo, 1990).
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Activity 1
Enlist the operations to he undertaken/continued by a school of your choice
and the financial resources required for each of them Are there uny resources
left unutilised or have the resources been surpassed? Balance the estimates
with the available resources by replanning the operations to be undertaken.

Budget, as we have been discussing, indicates comprehensive estimates of the probable

income from various sources and the probable costs that would be incurred. It is a
documented plan of the accepted expenditures and revenue.

Budget Period
Budget is usually prepared annually - 1st April to 31st March of the next year i.e., for
a financial year. However the yearly budget may be divided into quarterly or even
monthly budgets (Chandra, 2004).

Need for Budgeting

Now that you have a concept of budget let us specify the need to prepare it.

Activitp 2
Enlist the reasons for preparing school budget.

A budget enables systematic thinking about the future actions in a comprehensive and
coordinated manner. It is a tool for management by objectives, effective
communication, continuous feedback and evaluation. According to Chandra (2004)
and Pandey.(1983) budgets help in:
Inducing systematic thinking about the future
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Serving as a device for coordinating the complex operations of the enterprise
such as a school
Providing clearly a medium of communication of the plans 'and goals to all
concerned:
Providing a detailed plan of action for reducing uncertainty and for the proper
direction of individual and group efforts to achieve the goals.
Coordinating the activities and efforts in such a way that the use of resources is
maximised.
Serving as a standard against which the actual performance may be judged.
A budget thus provides the school with an operational 'cost-time' framework for the
implementation of the various activities of the school. This is because it is a forecast
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position of the school. P
of future financial events showing the anticipated revenue, ex enses and the financial
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Sehaol Budgeting and
Administering Budget

Budget as a tool for evaluation of the financial perform/ance of the school

This act of balancing requires exerting control over

prioritising needs by evaluating the urgency and
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In the activity 9.1 you had to balance expenses on needs (oper tions to be undertaken)
with the costs involved in each of the operations in such a wa that there were netther
any unused, i.e. surplus financial resources left, nor were th resources surpassed.
be undertaken by
resources
(revenues), controlling costs by adopting cost effective delegating authority
to persons who would be incharge of canying out the and estimating the
costs involved and related revenue. It is advisable to that promotes cost
effectiveness with high level of school output, of expenditure
(Commonwealth Secretariat, 1993).

A hurlget helps in identifying needs, and ensure

accountability. It also provides
financial requirements of the school (Enaohwb, . Elucidate thCse
objectives with examples taken ,from a school of

Essentials of Budgeting
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Now that you are aware of the need for a budget, let us st dy the essentials of
budgeting before we start learning how to prepare a budget.

Activity 4 I
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Collect information from a school of your c%oice qbout the essential aspects
of a school budget and enlist thee.

Successful and sound budgeting is based upon certain prerequ sites (Pandey, 1983)
These are briefly discussed below:
0, Top management support: The budget prepared has to be approved by the

national policies and goals of education.

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Let us study this with the help of a case study.
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Economic Efficiency and Case Study 1
Educational Effectiveness .
In the school budget Mrs. Sudha has been made incharge of selling the old
and damaged jiirniture. With the sale proceeds that has been estimated at Rs.
6,500, another sun1 of Rs.25,000 has been earmarked from the sate proceeds
of the school for her to purchase furniture for the primary classes.

Thus the assignment was delegated to Ms. Sudha who automatically becomes
responsible for carrying out this particular operation.
Adaptation of the Accounting System: Budgeting banks heavily upon the data
generated by the accounting system. However the data obtained has to be adapted to
facilitate the budgetary requirements of planning and control. For example the account
books reveal that a particular amount has been received as fees during a particular
year. But while making a budgetary estimate on this account, it is necessary to forecast
the probable student strength during the budget penod and the ensuing estimated revenue
from this source.
Full Participation: 6 1 1 participation of the school head and teachers in budget
preparation ensures better implementation of the budget. The teachers are aware of
the ground realities, the actual needs and can hence prioritise them in a better manner.
Involving the teachers in the process of budget preparation 6 r the school empowers
them and thus motivates them. Meaningful participation also enhances the commitment
of employees. As in the case study 9.1 if Mrs. Sudha is involved in budget preparation,
she would be motivated in carrying out the responsibility assigned to her. It gives the
benefit of shared governance. Techniques of budgeting, its evaluation,etc., may however
have to be taught to the employees so that they can perform in a better way.
Effective Communication: A comprehensive system of budgeting is not only based
on sound communication systems but also helps to improve the effectiveness of
communication within an enterprise. Budgeting is a formal way of communicating
plans, objectives and budget goals to various responsibility centres (units i.e., persons
incharge of operations to be undertaken). It helps in communicating the plans of the
school and the means to achieve thkm to the concerned persons.
Flexibility: The budgeting system should be flexible enough to take advantage of all
opportunities that arise from time to time and are not covered by the budget. Otherwise
not only would the fund generated suddenly may remain unused while a pressing need
remains unfulfilled but also impair the initiative and freedom of the school head and
the teachers. A rigidly administered budget imposes strait jackets in implementing it
and hence should have the element of flexibility. It is also to be seen that a budget
should not become merely an accounting document dictated by book keeping activities.
(Nelson and Purdey 1971, 1977 quoted by Orlosky, McCleary, Shapiro and Webb
1984).

Activity 5
I prom a school find out
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II i)ii) the percentage of the teachers who participate in the budget preparation
whether they,have received any training in budget preparation
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n p e s of Budgets
We shall now study the major types of budgets of a school. They are School Master
Budget, School Capital Budget, School Department Budget (Commonwealth
Secretariat, 1993).
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School Master Budget: This is the overall school financial an o ~ r a t i n gplan for a
forthcoming fiscal period. This is usually prepared annually. I is a comprehensive
financial plan that takes into account every operation to bevndert
financial year. It includes all the possible sources of revenue and
during aparticular
involved.
School Budgeting and
Administering Budget

School Capital Budget: This type of budget usually is for ms longer than one
year and they are fiscal plans for major expenditure on capital
assets like the school building, halls, laboratories etc.
implications for the school. It requires estimates of
of time and hence is more difficult to prepare.

financial year.
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Activity 6 I

A school wants to build u new primary wing for the primary classes. It has to
prepare a budget.fbr it. Its chemistry depurtment has m budget, which it regularly
prepares on its own. Besides facilities for safe drinking water, a back up
power scipply und childrerz's exccirsion are to bd included in the budget.
Segregate these operations to be taken cip into their respective budget types.

Check your Progress 1

2. State any three needs of a budget.

4. What are the different types of budgets of a s c b o l ?

 Economic Efficiency and are gaining popularity mainly because of the shortcomings associated with the traditional
Educational Effectiveness
method of budgeting.

I Line Item Budgeting '

It is the traditional form of budgeting. It is also called 'object budget' since expenditure
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is broken down in an'object wise manner. Expenditure for general categories like
salaries, maintenance of building, purchase of books, etc., are allocated in gross terms.
Such traditional budgeting suffers from certain weaknesses. One of them is the failure
to relate costs to educational impacts i.e., output that would be gained by incurring the
expenditure on that particular object is not indicated. The gain to the school from the
investment made on a particular object is not specified. Secondly there is separation
of estimating from policy making. Estimates made in isolation from the cost benefit
are not helpful in policy formulation. For instance, if the investment made in ICT
facilities can be justified then a policy can be adopted to continue or even enhance 1
such facilities in future. 1

Since estimates for enlisted items are included, hence it is commonly called 'line-item
classification'. 'What' is purchased rather than 'why' it is done so is indicated. It only
reveals the financial outlay and the same is not properly inter-related with the physical
programmes visualised and the achievements made or proposed to be made. It does
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not therefore help the administration to appraise the performance of the different
schemes, programmes or activities on which money has been spent. Hence it does not
serve as an adequate basis for informed decision-making. (Shukla 1983, quoted by
Bhatnagar and Agrawal, 1997).
Example of Line-Item (Traditional Budget) Adapted from Orlosky, McCleary,
Shapiro and Webb (1 984).

1 Description. Budget Amount (Rs.) I

Instruction
Teachers
Supporting Staff
Text Books
Library
Audio Visual Aids
Supplies
Total Instruction

Estimates for individual items are listed. The justification is not given for the spending.
Thus Line - Item Budget does not reflect the cost benefit analysis and value for
money.

Programme Budgeting
The traditional line-item budgeting has an input orientation but programme budgeting
allocates resources not by line items but by programmes undertaken by the school. It
is a fiscal plan related to the programmes undertaken. This type of budgeting is an
integral part of the ~ v e r a l systems
l approach, be it PPBS (Planning, Programming,
Budgeting System) or some other system and involves minimally the following items:
Grouping of all efforts and activities into programmes such as transportation,
food, physical education, etc.
Establishing the major goals of each programme.
Mentioning specifically the objectives that on achievement would ensare the
10 accomplishment of the larger goals.
a Establishing allematiYes for achieving goals of the prograbmes. School Budgeting and
Administering Budget

programmes. i
Comparing costs and effectiveness for alternatives of att ining the goals of the
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Establishing evaluation criteria to measure the success o each programme.
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Allocating resources for each programme to accomplish i s goals.
The Line-item budget presented in the previous example is prdsented as programme
budget in the given example.
Example of Programme Budget (Adapted from Orlosky,
I Shapiro and
Webb, 1 984).
Thus resources. are allocated not for individual items'but for programmes that are

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undertaken by the school.

Programme Teacher Suppor- Text Total

ting Books Cost by

~mtAction 11 Prog.
(R.4
Languages 2,00,000 50.000 3,51,000
Science 1 2,W,O 1 50,000
Mathematics I 2,00,0m 1 50,000
Social 2,00,000 50,000 40,000 60,000 10,000 1000 3,61,000
Studies

Zero Base Budgeting (ZBB)

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This is a relatively new concept in budgeting method. It aims to p vent the incremental
growth or 'budget creep' of the traditional budget. It is quite po ular in some western
countries.
Each programme or activity has to be justified and each year budget from a zero
base has to be constructed by providing new objectives, ev luation criteria and
justifications (Orlosky, McCleary, Shapiro and Webb, 1984). It starts on the premise

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that the budget for the next period is zero as long as demand fore pense on a particular
operation is not objectively justified.
The assumption of a zero base budget (ZBB) is that without propxjustification by the
manager, spending would not be allowed. Cost benefit analysis c f the money spent is
required. It naturally leads to better financial management.
In the traditional budget, while budgeting incrementalpricing i.e. d1~eto price escalation,
price of each item or overall price is assumed to be a cdrtain pe-centage higher than
that of the previous year. This lacks objectivity but in ZBB this shortcoming is overcome
by starting with nil or zero base and then objectively, through justification the price is
arrived at. It ensures better control and maintains operating efficiency in an organisation.
Besides, resource allocation is strictly according to needs of the ~rganisationand the
output (benefit) of the resource spent. Steps of preparing ZBB a re
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defining the objectives

formulation of an operation plan or decision packages 0

ignoring existing budgets and preparing a fresh budget taki g base nillzero with

critically examine each item of expenditure in the fmsh bud ;et on the basis of its
merits and desirability
a evaluating alternative courses of action to compare the pri tes i.e. performing a
cost-benefit analysis before deciding to spend on am item
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Economic Efficiency and selecting the alternative, which is found to be closest to the objective defined
Educational Effectiveness
Let us study the following case study in this context.

Case Study 2
While preparing the budget of a school it was proposed to include the expenses
for a television set and a computel: The just@cations were sought since it would
be a zero base budget.
The j~lstifications given were that the st~ldentswould benefit from educational
programmes on TV set ancl for computer it was proposed that the jlnancial and
other records would be computerised and the students could be sensitized
regarding the uses of a conzputer.
For the first proposal it wcis felt that the alternative oj' hiring a VCP and cassettes
every week would be a bett'er ulternative since cable connections were not
available in the school. Again educ-ational channels could -also not be accessed.
The proposal for the conzputer was therefore approved.

Thus we see that ZBB is a tool for Management by Objectives. Its inbuilt provisions
for cost benefit analysis with a look out far effective but economic alternative and
justification of the money spent greatly helps in reducing wasteful expenditure. It is
helpful in efficient financial management.

Activity 7
Collect information from your I0 neighbouring schools about the method
adopted for preparing the budget. How many of them have switched over to
ZBB? In case there are schools still continuing ~ ~ i thet h traditional budgeting,
find out the reasons for their still continuing with it:

9.5 PREPARATION OF BUDGET

Now that we have studied the need for a budget, its types and methods of preparing,
let us study as to how it is prepared. As stated earlier a budget forecasts the future
financial events and indicates the anticipated revenue, expenses and financial position
of the school (Commonwealth Secretariat, 1993). In view of this, budget preparation
needs care and caution., The different stages involved in budget preparation are
discussed below.
Prioritisation of needs: Schools usually are not flush with funds. Hence, the needs
of the schools have to be judiciously prioritised. Programmes, projects, activities that
are to be taken up during the budget period on priority basis have to be identified.
Comprehensive statements of the various activities identified, preferably with their
justifications and objectives in terms of educational outcomes have to be made.
Identification of financial resources: The financial resources available during the
budget period have first to be identified. The revenue should be sufficient to meet the
expenditure that is to be incurred. The financial plan i.e. the budget must clearly
indicate how the cost of the various items will be met (Bhatnagar and Agrawal, 1992).
The resources in terms of fees collected, sale proceeds, grants, donations and revenues
generated from the misceHaneous sources have to be included as the financial resources
of the school.
Estimation of Costs: This involves analysis of the expenditure. The expenditure
plan in traditional budgets is based upon that of previous year's budget with some
increment but in zero based budget the previous years' expenditures are not considered
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as the bases but estimated afresh. The expenditure plan should comprehensive and school Budgeting and
Administering Budget
include direct as well as indirect expenses on the itkms in the budget.
Expenditure on administration, staff, equipments, freeships,

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costs like, electricity, water, rent, telephone etc. shouldlbe inclu eil in the fiscal plan.
Cost benefit analysis and alternative paths ensuring eiconomy should be indicated.
Any expense to be undertaken should be justified. I

It is desirable that the revenue (income) as far as possibli should balance the '

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expenditure. Otherwise, there would be revenue deficit, whic should be preferably
minimum and ideally nil.
Presentation and Adoption of the Budget: The budget th prepared has to be
presented as per the guidelines of the government or th&other
school so that it is approved after it has been scrutinised. The
it is or with some modifications. Thereafter it acquires the
and is deemed to have been adopted. This process is to
beginning of the financial period for which the budget is

should be collected.

Activity 8

9.6 ADMINISTRATIONOF THE $LIDGET

After the budget has been approved by the authorities concerned, it has to be
implemented, monitored and controlled. All these activit es together form the
administration of the budget.
However well a budget may have been prepared, it cannot effective until and
unless it is administered well. A budget has to be the babis transactions.
The expenditure made during the budget period should
manner. Changes in the budget should not be made
would adversely affect its importance as a legal
of financial resources of the school.
It is always better to settle the accounts as early
pending. While making payments through
to record the same without delay. Similarly,
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Monitoring the School Budget

It has to be seen that there is no over spending. If mQre than that allocated is
needed then either the activity should not be undertakkn ission for reallocation
of funds may be sought from the authorities Secretariat, 1993).
Especially on items involving greater expenses, on whether planned
expenditure is on target or exceeding it. For on pencils and
erasers exceeds 2% of the amount allotted,
significant but if it is in case of the salary
significant. /

The person incharge of the finance

expenses incurred. A difficulty
particular financial year within
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Economic Efficiency and carried forth to the next financial year or if viring it to other budgetary heads (switching
Educational Effectiveness
over expenditure with funds meant for one head being spent on another) is permitted
has to be seen (Donnelly, 2003). This would help in reducing the rigidity associated
with the strict monitoring of the budget.
Monitoring the school budget should not be a periodic affair but should be carried out
regularly through out the budget period. It can be done through the following steps
(Commonwealth Secretariat, 1993).
Check that expenditures are made in compliance with the budget authorisation.
Check if the budget is balanced in true sense and see whether there is a surplus
or deficit fund at the end of the budget period and if there is a possibility of
building reserves.
Assess the budget and its implementation in order to prepare subsequent budgets
efficiently.
Provide continuity in the school's accounting system as financial accounts are
established on the basis of the balance sheet of the previous year and continue as that
for the ensuing year.

Budgetary Control
Budgetary Control is an important task that the management has to take up. While the
budget is implemented, there has to be a continuous comparison of actual performance
with that in the budget. It helps in the revision of budget and helps in making changes
in objectives and policies. It involves the following steps (Fandey, 1983):
Realistic budgets or plans are prepared to provide direction to cany out operations
of the school.
Actual performance from each area of responsibility is assessed.
Actual performance is compared with the budget performance to trace out
significant deviations.
As a feedback mechanism, reports are prepared to inform management about
deviations from the budget (plans).
Corrective action is initiated to ensure that future performance is in accordance
with the budget. Action may involve motivating people to implement policies,
modifying certain policies, retraining employees, etc. The budget (plan) will
however need revision if variance (deviation) is due to incorrectly set budget.
As long as the actual performance approximately conforms to the budget, no
intervention is needed. But it is certainly needed when there are significant deviations.

Activity 9
From n school run by the government and another by n private body Jind out
how they nlorlitor und control the school budget in the respective schools.

Check Your Progress 2

Note: Answer each of the following questions briefly.
I. State the shortcomings of traditional budgeting.
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 School Budgeting and

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How is programme budget different from Line-Term Bud
I Administering Budget

3. What are the strengths of ZBB over traditional budget?

4.
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Explain how a budget is monitored?
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5. Describe the concept of budgetary control.
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9.7 LET US SUM UP 1

A budget is a financial plan, which is comprehensive and
for a definite period of time called budget period. It is a
be incurred and enlists the resources (revenue) and
during the budget period. It clarifies the financial
and expenses.
Traditionally prepared budgets enlist activitieslitems and the cost i$volved. It is prepared
on the basis of the budget of the previous year with some incrednent in the expenses. -
Programme budget enlists the programmes to be undertaken o continued and their
costs while zero base budgeting considers expenditures objective1 and permits spending
only if it is justified. After setting realistic goals, identifying the ources of income and
expenditures to be incurred and balancing them have to be done Cost benefit analysis
is also involved in this process. Thereafter the budget is prese ted to the authorities
for their approval. Thereafter it is implemented and monitored. 4 i t h budgetary control,
the actual performance can be compared with that of the budget.
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9.8 UNIT-END EXERCISES 1
Answer each of the following questions briefly:
i) How does a budget create centre of responsibilities abd thus delegation of
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authority? 1
ii) Why do we need information a b u t future events like expedted enrolment, income
etc. for preparing budget?
iii)
iv)

9.9
Explain the different types of budgets.
Explain how a budget is administered. Why is it necessa

REFERENCES AND SUGGESTED ~EADINGS

! to monitor a budget?

Bhatnagar, R.P. and Agrawal, V. (1997): 'Educution Admi istmtion, S~ipervision,

Planning and Finuncing'. Surya Publications, Meerut.
Chandra, P. (2003): "Finance Sense - Finatzce ,for Non-fincznce executive.^". Tata
Mc Graw Hill Publishing company Limited, New Delhi.
n
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Economic Efficiency and Donnelly, J. (2003): 'Managing Urban Schools - Leading from the Front'. Kogan
Educational Effectiveness
Page, London.
Enaohwo, J.O. (1990): 'Economics of Education and The Planning Challenge'.
Anmol Publications, New Delhi.
,
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Orlosky, D.E. McCleary, L.E., web& L.D. (1984): 'Educational Administration
Today'. Macmillan Publishing Company, New York.
Pandey, I.M. (1983): 'Financial Management'. Vikas Publishing House Pvt. Ltd.,
Delhi.
Better Schools, Resource Materials for School Heads. Module 5 , "Financial
Management". Commonwealth Secretariat (1993).
Modern Management Techniques in Education. Division of Educational Policy
and Planning. UNESCO, Paris (1986).
Websites
http://www.laynetworks.com/Accounting http://www.duncanwil.co. uklbudg.htm1
http:Nwww.fao.org/docrep/w4343E