Important Differences between Performance and Traditional Budgeting

Performance Budgeting provide a meaningful relationship between estimated inputs and expected outputs as an integral part of the budgeting system. ‘A performance budget is one which presents the purposes and objectives for which funds are required, the costs of the programmes proposed for achieving those objectives, and quantities data measuring the accomplishments and work performed under each programme.

PB is a technique of presenting budgets for costs and revenues in terms of functions. Programmes and activities are correlating the physical and financial aspect of the individual items comprising the budget.

1. The objective of performance budgeting is, however, to have the performance as shown within the budget allocations.
2. Performance budget, on’ the other hand, aims at establish­ing the relationship between the inputs and the outputs.
3. In performance budgeting main focus is to be given on the purpose for which the expen­diture is incurred and not on each item of expenses.
4. Performance budgeting is no doubt, more effective to control various activities since it mea­sures the input-output relation­ship.
5. Performance budget is prepared on the basis of actual need of the organisation i.e., on the basis of job analysis.

Types of Performance Budgeting

Presentational Performance Budgeting

Performance information is presented in budget reports.

Presentational Performance Budgeting

Resource allocation is done based on the results obtained.

Performance-informed Budgeting

Resources are indirectly related to expected future performance.

Traditional Budget:

1. The objective of traditional budget­ing expresses that the actual expen­diture cannot exceed the budgeted allocations for the same.
2. The traditional budget gives more emphasis on the financial aspect rather than physical aspect.

So, it is difficult to achieve and to measure the performance in relation to physical units and related cost of such units.

3. Usually traditional budgets are prepared for different items of expenditure viz., Salaries, Stores & Material, Rent, Rates and Taxes etc.
4. Traditional budget is not so effective while controlling activities at the time of preparing budget. It cannot measure the performance criteria.
5. Traditional budget is prepared on the basis of last year’s performance with some addition and alterations (i.e., after some adjustments).