sample essay of MGX5440 (2)

other sample of first assignment of MGX5440, also D

Abstract


Previous studies show that there are several features of effective budgeting for the company. And managing a country is similar as running a company on some level. So, this report is using the previous studies’ conclusions, and put them into public sector content to analyse the features of effective public sector budgeting. Three features are discussing in this report- understandable, monthly base and transparency. Also, a case from China is used to demonstrate the importance of these features. At the end of this report, it finds that the features are important, but governments’ attributes are more important.



Introduction

Managing a country is similar as running a company on some level. The purpose of both company and government is maximum the benefits to shareholders/ stakeholders. The president, chairman or Prime Minister can be treated as the boss of a company, because he/she decides the direction of country. Finance Minister plays the same role as CEO or CFO in the company. Other Ministers like the directors in the company, they involved in the management processes. In this report, by using previous studies conducted by other people about the features of effective companies’ budget to find out what features should effective public sector budgeting contain. A case from China will be used to demonstrate the theories.



The purpose of budget

First, to understand the purpose of the budget will help us to determine the features of effective budget, because these features should support the purposes of the budget. According to Brian (2010), the purpose of budget is twofold 1) to forecast where the business is going and what the implications are, such as a need for extra machinery, and to decide on necessary actions if the predicted outcomes are unacceptable 2) to act as a business discipline during the year, allowing regular reviews of progress against budget so you can analyse why things are different from expectation and decide on what to do to correct adverse variances or reinforce favourable ones.



The purpose of a budget is not to go through a repetitive, unthinking ritual: the purpose is to help the analysis of what is going on and to lead to actions. The budget is like a navigation chart for a ship. You know where you are trying to get to and you plot a course (the budget) and as you move along and veer away from the planned course, you use the chart to guide you to take actions to get back on course so that you can get to your destination or, if you will miss it, decide whether that causes you a big problem and if it does, what to do.



For the public sector budgeting, the purpose of the budget is same as the companies’. It should provide a direction of how to use the public funds. Also the government should follow the budget to conduct its work. In the rest of this report, it will describe three features of effective public sector budget.



Key Features

Understandable

There's no need to make a budget into a complicated headache. Effective budgets are clear, simple, minimal, and thorough all at once. This means the budgets should be understandable (Crystalgemt, 2010). By making an understandable budget, the employees and senior managements will know what are the goals of the company, and easy to follow the goals. For the public sector, when the central government makes the budget, local governments need to follow this budget and make their own budgets and plans. When the central government’s budget is easy to understand, it will make everything clear. And the local governments will be easy to follow this budget. In contrast, if the central government’s budget is complex, the government officers and the local governments may confuse what should they do. Consequently, the budget cannot be performed well.



Track expenses monthly

For a company, making monthly budgets (both revenue and expenditure sides) can help the company tracks the funds effective and efficient. In public sector, the monthly base budgets are also necessary. From the monthly budgets, the government can know its mission on each time period. Hence, it will help the government goes well through the whole year. There is a case from China can demonstrate the importance of monthly base budgets. According to Chongqing Evening Newspaper (13th Dec, 2009), the China government had spend more than 5.6 trillion Yuan (approximate 0.9 trillion Australian Dollar) in the first 11 months, but as China Ministry of Finance stated, the governments (both central and local governments) should spend 7.6 trillion Yuan (approximate 1.3 trillion Australian Dollar) in 2009. This means that the governments should spend 2 trillion in the last month (December). From this news, it indicates that the expenditure of each month is imbalanced in Chinese governments. For the first 11 months, the governments spend 0.5 trillion Yuan per month on average, but in the twelfth month, it needed to spend 2 trillion Yuan. Also, that was not the first time that China governments needed to spend a lot of money in the last month of fiscal year. Some Medias say that government spend huge funds in the last month becomes a tradition in China. Two problems are addressed in the case. First, there is no monthly base budget in China. If China has monthly base budget, the amount which governments should expense in each is clear, so that this imbalanced thing will not happen. Second, the budget of China is lack of transparency. The transparency is discussed as below.



Transparency

Transparency of budget is very important for the company. If one companies’ transparency is high in a company, it indicates that the internal control is good in that company. Because of transparency, the directors or managers are hard to chase their own benefits in the company. Similarly, the transparency is very important for the countries’ budget. As the transparency of public sector budgets is improved, the citizens will know how the government works, and whether the government runs in a correct way. Also, if there are some problems contained in the public sector, the problems will be easy to find out. In the China case which mentioned above, if Chinese government put the public budgets on websites or other channels, citizens or Medias will find the problems earlier. So that some related departments can correct their direction earlier. Compared with some developed countries, Chinese government does need to consider how to improve its transparency. Some countries, such as Australia, Japan and US, they put the governments’ budgets on the Internet, so everyone can download and read them for free. But on the Chinese official websites, it is really hard to find the documents about public sector’s budgets. The public sector’s budgets cannot be treated as effective budgets without transparency.



Conclusion

As discussed above, there are three features of effective public sector budgets- understandable, monthly basis and transparency. Understandable makes the budgets are easy to follow by the related departments and local governments. Monthly basis and transparency make the citizens and Medias easy to find out the problems contained in the public sectors. One China case is shown during the discussion, and it indicates the importance of the last two features. Of course, there are some other features of effective public sector budgeting, such as measurable, comparable, clear goals and so on. But in my opinion, if the governments do put the benefits of citizens in the first place, these features are not that important. Because the governments know what should to be done to maximum the benefits of citizens.




References

Brain. F (2010) Effective Financial Management, Kogan Page



Chongqing Evening Newspaper (2009) Chinese Financial Departments need to spend two trillion in December, http://www.cqwb.com.cn/cqwb/html/2009-12/13/content_187814.htm



Crystalgemt (2010) What Are The Top Features of a Good Budget, http://hubpages.com/hub/What-Are-The-Top-Features-of-a-Good-Budget