"Within the framework of financial management for libraries, the budget stands as a central aspect. The budget, essentially a statement of income and expenditure, serves as a guiding document for managing funds allocated over a period of time. Beyond its financial role, the budget serves as a tool for control, communication, coordination, evaluation, and motivation.
Budgeting, a managerial function covered under POSDCORB in (Principles and Functions of Management), holds significance as both a planning instrument and a control mechanism. It functions as a plan document by projecting financial plans for the library's future and acts as a control mechanism by facilitating budgetary control. This control helps monitor performance against the plan, making it possible to rectify any deviations from performance targets.
A budget serves as a roadmap, outlining the provision of library services in the coming years and forming the fiscal foundation for library operations. It offers the opportunity to secure necessary funding for existing services while also seeking supplemental support for expanding services or accommodating increased use. The budget functions as a means to monitor required revenues and track expenses that can be reported. It encompasses detailed cost factors for each activity, incorporating projections for future growth and the commitments of library services. Due to the financial implications, standards for operational procedures are also essential."
LIBRARY BUDGET AND FINANCIAL PLANNING
Budgeting is a meticulous planning process that encompasses the management of an organization's expenditures and revenues within a defined time frame. A "budget" functions as both a plan document and a financial statement, outlining proposed revenue allocations and their intended utilization for expenditures over a specified period, usually a year. This process acts as a means of scrutiny and control over anticipated inflows and outflows of funds. Budgeting, however, need not be limited solely to monetary terms; it can also be articulated in both financial and non-financial contexts. Despite its flexibility, the strength of budgeting lies in its expression through a common denominator, typically the currency unit Rupee. Thus, budgeting entails quantifying all operational plans to assess their potential to achieve desired outcomes and allows for necessary adjustments when deviations arise.
A budget serves as a quantifiable representation of an action plan, functioning as a crucial tool wielded by library or information center managers. It operates as a roadmap, guiding managerial decisions towards intended goals, and as a monitoring tool, facilitating the measurement of progress and highlighting deviations from the initial plan. Essentially, a budget fosters organized and progressive planning, aids coordination and implementation, serves as a financial control mechanism, and facilitates result evaluation.
It's important to note that a budget constitutes a systematically formulated projection of estimated revenue and expenditure for a given institution over a specific timeframe, usually a year. This process aims to create a financial plan that concurrently fulfills the objectives of restraining expenses within income limits and ensuring well-thought-out expenditure. Financial planning and budgeting yield distinct advantages, such as clarifying goals, identifying areas of responsibility, illuminating organizational weaknesses, quantifying objectives and achievements, optimizing resource utilization, indicating timely actions, and pinpointing deviations that require corrective measures. However, while budgeting offers significant benefits, it can also present challenges:
i) Overemphasis on easily observable factors, such as library circulation figures.
ii) Temptation to adhere to routine practices without enhancing operations.
iii) Quantifying library services in terms of Rupee can be challenging.
iv) The need for constant adaptation due to changing circumstances.
v) Budgeting requires active management and doesn't function automatically.
vi) Hence, budgeting and budgetary control require judicious implementation.
A budget serves as a roadmap for allocating funds to various activities and operations throughout the institution over the upcoming year. The fundamental principle underlying this forward-looking guide is that estimated expenses must not surpass the revenue generated. In essence, a balanced relationship between income and expenditure is imperative. It's crucial not to confuse a budget with annual financial reports; the latter serves as an official record detailing achievements and shortcomings during a specific year, whereas the budget is a prospective estimate for the impending year.
Undoubtedly, a budget plays a pivotal role in control, communication, coordination, evaluation, and motivation. It exercises control by directing expenditure according to predetermined financial regulations and procedures. Budget estimates communicate to staff and stakeholders the institution's overall financial plan, allocating funds for each significant expenditure category and guiding spending practices. Budgeting facilitates coordination by enabling units to share common expenses, leading not only to cost savings but also optimal fund utilization. Additionally, it aids in evaluating performance by assessing fund utilization within the designated period. Above all, a budget serves as a motivational tool, as it allocates resources to activities for which they were sought, envisioning future developments. All these attributes and merits of budgeting are equally applicable to the realm of library budgets.
BUDGETARY METHODS AND TECHNIQUES
Every library, regardless of its size, must operate within a budget framework. Typically, the librarian and senior staff collaborate to create the budget, adhering to the budgetary guidelines established by the governing authorities. The budget is meticulously examined, refined as necessary, and subsequently endorsed by the Library Executive Committee before undergoing final review and approval by higher-ranking officials. In most cases, libraries adopt the methods and protocols outlined by their parent organizations. However, certain small specialized libraries, due to their limited scope, might be exempt from the requirement of preparing exhaustive budgets.
Various approaches are employed to formulate library budgets, encompassing both traditional methods commonly employed by libraries and innovative techniques that have emerged in recent times. These budgeting methodologies are elaborated upon in the subsequent sections.
Line Item or Incremental or Historical or Object-of Expenditure Type Budgeting
Perhaps the most widespread type of budgeting is the one that systematically categorizes expenditures into broader classifications such as books and journals, salaries and allowances, equipment, supplies, capital expenditure, contingencies, and more. This approach, commonly referred to as the traditional method, involves breaking down each of these broader categories into further subdivisions. Often known as historical budgeting, this method leverages past expenditure data for each item to create the current budget. It incorporates a small increase, typically around 5 or 10 percent, to the allocation of major expenditure items from the previous year. This approach, assuming that all current programs are equally essential, is termed incremental budgeting. Another name for line item budgeting is Object-of-Expenditure Type Budgeting.
The primary advantage of this budgeting method lies in its relative simplicity in preparation, presentation, and comprehension. It helps ensure that allocated funds are utilized for their intended purposes. However, despite its widespread use, this method has several limitations. It does not delve into performance evaluations of activities and services and lacks future projections. In essence, it doesn't involve a critical assessment of the appropriate funding for various activities and services. Furthermore, it tends to perpetuate the status quo without any forward momentum. This rigidity inhibits budgetary flexibility, as allocated funds for a specific purpose cannot be reallocated to address other pressing needs. For instance, funds designated for equipment cannot be shifted to acquire crucial titles of current journals, even if such a shift would be justified.
This approach tends to prioritize tools over the outcomes they are meant to achieve. It also tempts organizations to inflate their needs and request more funds than necessary. Most significantly, it lacks foresight and fails to establish accountability for performance outcomes.
Formula Budgeting
Built upon financial norms and standards, this method seeks to establish correlations between certain inputs, such as the number of users served, academic programs supported, and the ratio of book stock to the total funds of the parent organization. Formulas are employed for both financial estimation and budget justification. This approach is characterized by its broadness and efficiency, enabling a swift process that conserves time. However, it falls short in accommodating nuanced differences specific to each library, its clientele, and the array of services it provides.
Programme Budgeting
This method, originally put forth in the Hoover Commission Report (1949),
comprises three sequential steps:
(i) articulation of agency (i.e., library) objectives,
(ii) thorough examination of alternative approaches, and
(iii) systematic selection of the best approach based on effectiveness and efficiency. Evolving from the line-item approach, this method aims to address queries such as 'why the money is being spent?' and 'how resources need to be allocated for each program?'. It is particularly suitable for a contracting economy. Consequently, a financial blueprint is presented in the form of programs and subprograms structured around work units or workloads. Work units are deemed quantifiable, and their costs serve as the fundamental building blocks of the program budget.
This budgeting method emphasizes the library's activities, with funds designated for programs or services that the library intends to deliver. For example, if a library plans to offer a Current Awareness Service, the expenses associated with that service (including staffing, materials, publications, overheads, etc.) are calculated to estimate the expenditure. The budget is constructed based on the cost of programs, considering whether a program should continue, be altered, or discontinued.
Another approach entails grouping major programs or functions, aligning with the library's organizational structure, such as administrative services, technical services, and reader services. Each service can be organized through departments such as acquisition, classification and cataloging, reference and bibliographical services, and documentation and information services. This includes summarizing descriptions of these functions or programs along with comparative figures of current and proposed expenses. In this budgeting type, provisions are made for various activities within each department. This method empowers department heads to assess their requirements and monitor their expenditures.
Performance Budgeting
This budgeting method shares similarities with program budgeting, but the focus shifts from programs to performance. Expenditure is anchored in the performance of activities, prioritizing operational efficiency. This approach necessitates meticulous collection of quantitative data related to all activities over a specific period. Management techniques like cost-benefit analysis are employed to assess performance and establish benchmarks. For instance, data on the number of acquired books, classified and cataloged items, actual man-hours required for processing, and so on are collected to ascertain the manpower and resources needed for these tasks. The method underscores the performance and operational efficiency of programs. Similar to program budgeting, it commences with articulating agency objectives, thoroughly exploring alternate ways to achieve those objectives, and then logically selecting the most effective, efficient, and cost-effective approach. The budget is calculated by multiplying the unit cost for specific operations by the anticipated volume of operations. The advantage of this method lies in its focus on the library's service mission. However, quantifying service quality and activities proves challenging. This method primarily quantifies quantity and not quality, which is intricate to measure in monetary terms. In essence, budget allocation for a service institution like a library doesn't necessarily correlate directly with the level of user satisfaction from library services. Measuring the monetary benefits of libraries, the complex interplay of costs for different operations, and the nonlinear cost variations for each unit of output (marginal/incremental cost) present obstacles in devising a budget using this method. It may seem overly cautious and might require a comprehensive review of each operation annually by the authorities.
Planning Programming Budgeting System (PPBS)
This budgeting approach was initially introduced by the United States Department of Defense (USDOD) in 1961. It encompasses two key elements: budgeting and systems analysis. Pertaining to programme budgeting, it integrates systems analysis, operations research (OR), and other cost-effectiveness methods to systematically and comprehensively compare the costs and benefits of various approaches to achieve a policy goal or program objective. This framework establishes a rational foundation that empowers decision-makers to select between different programs. PPBS combines the strengths of both programme budgeting and performance budgeting. It emphasizes planning, commencing with the definition of goals and objectives and culminating in the formulation of concrete programs or services. Similar to performance budgeting, the measurement aspect of control is integral to PPBS. This method harmonizes the functions of planning activities, programs, and services, translating them into tangible projects, and subsequently presenting the requirements in terms of budgetary allocations. However, the implementation of PPBS faces significant challenges due to disparities in practice and the absence of standards for evaluating program effectiveness/performance.
It also encounters other implementation issues and critical gaps, including:
(i) Prioritizing what will be accomplished over how it will be achieved.
(ii) Failing to provide an operational tool.
(iii) Lacking a mechanism to assess the impact of various funding levels.
(iv) Concentrating on new programs or major increases in existing ones, rather than continuously evaluating ongoing programs.
(v) Basing cost calculations on decisions made during the planning and programming stages.
Zero-Based Budgeting (ZBB)
Developed by Peter Phyrr in the early 1970s, the Zero-Based Budgeting (ZBB) method demands a comprehensive understanding of the organization, substantial time, effort, and training. Unlike historical budgeting, ZBB aligns more closely with PPBS by underscoring present activities and the necessity to rationalize each component of a program annually. ZBB operates on the premise of starting each program's budget from "zero" until the appropriating authority is convinced that the program merits support at a specified level.
This approach challenges incremental budget growth and transforms the budgeting process into a meticulous and comprehensive endeavor. ZBB acts as an operational, planning, and budgeting process that mandates managers to justify their entire budget request from scratch. The method shifts the responsibility of proving why expenditure should occur onto each manager. All activities are meticulously identified and developed into "decision packages," which are systematically evaluated and ranked, often with the assistance of a computer. This method disregards historical data and instead concentrates on current activities, necessitating a fresh justification for financial support each year.
Steps involved in ZBB preparation encompass:
- Grouping activities/programs to the lowest level entity.
- Analyzing the objectives and activities of each program, evaluating alternative methods.
- Organizing programs into a series of 'decision packages' with purpose statements.
- Ranking the 'decision packages.'
- Determining a cut-off point that corresponds to the total budget allocation.
ZBB enhances the planning and budgeting of libraries, fosters the development of effective management teams, and generates long-term benefits. However, its implementation is hindered by significant challenges, including the substantial time and effort required, administrative complexities, and difficulties associated with developing and ranking 'decision packages.' As a result, ZBB adoption remains limited within library contexts.
Certain budgetary methods have emerged more recently and offer a clearer perspective on the financial requirements of activities and services. These methods allow for more objective justifications, making them more effective tools for purposeful allocation of funds. However, understanding the internal dynamics of the budget process within the parent organization is essential, and active participation in final negotiations and leveraging personal contacts can prove beneficial. In India, most libraries traditionally adhere to the historical method of budgeting, although some attention has been given to newer methods in recent years. It's important to recognize that many library functions and services are continuous and cannot be abruptly discontinued without considering their past performance. While evaluating performance and seeking improvements is crucial to maintaining service quality, discontinuing existing services might be undesirable, especially if conditions don't warrant it. A comprehensive assessment of these budgeting methods can only be achieved if Indian libraries start implementing these newer methods and gain practical experience in their application.
BUDGETARY NORMS AND STANDARDS ( source: IGNUO)
Financial planning and budgeting in libraries are guided by established standards and norms set forth by professional experts, committees, and bodies. These standards are instrumental in estimating budget requirements, justifying funding needs, and allocating funds to different categories of expenditure.
As we delve into the methods of estimating funds and distributing them, three crucial methods come to the forefront: the per capita method, the proportional method, and the method of details. These methods utilize recognized standards and norms. However, the aspect of allocating budgetary funds among various competing expenses also requires consideration. In libraries, significant expenditure areas include books and journals, salaries and allowances, both contributing to the overall service delivery.
Ranganathan has proposed a proportion for the distribution of expenditure in a university library as follows:
- Staff: 50%
- Books and other reading materials: 40%
- Miscellaneous: 10%
The University Grants Commission Library Committee (1957) recommended a budget provision for a university library serving 5,000 students and 500 teachers and research fellows. Their suggested allocation was Rs.3,50,000, equally distributed between books, journals, and reading materials, and staff expenses. However, the typical trend in libraries leans towards allocating more funds for staff salaries compared to books.
Considering the suggestions of education commissions, library experts, and the University Grants Commission, general norms for budget distribution are often as follows:
- Salaries and allowances: 50%
- Books: 20%
- Periodicals: 13%
- Binding: 7%
- Other expenses (supplies, maintenance, etc.): 10%
In public libraries, the distribution tends to be similar for major expenditure items:
- Salaries and allowances: 50%
- Books: 20%
- Periodicals and Newspapers: 5%
- Binding: 5%
- Other expenses: 20%
Current perspectives on library and information services, library budgeting, and related matters encompass the following viewpoints:
i) Libraries, regardless of their types, should be completely user-oriented, focusing on addressing user needs systematically. Libraries must assess and gather user requirements, upon which they should structure their services.
ii) Library budgets should align with need-based services, reflecting the emphasis on catering to user needs.
iii) It is essential to determine unit costs for every operation within a library and formulate budget estimates based on this data. Despite this necessity, the cost of library operations and services, particularly in India, is often overlooked. Libraries commonly function on funds allocated by parent organizations without a systematic basis for allocation. Implementing cost accounting is imperative to establish budgetary estimates.
iv) Given the significant rise in expenses such as book costs, journal subscriptions, staff salaries, and library and information services, a common question arises: Should library services continue to be offered without charge? Certain services like literature searches, document supply, bibliography compilation, selective dissemination of information (SDI), current awareness services (CAS), etc., could potentially have pricing mechanisms. However, considering Indian circumstances, such services may still be subsidized to some extent. Overall, the importance of library services necessitates the development of a more scientific approach to library expenditure. Library budgeting must evolve to become more innovative and responsive to emerging demands.
METHODS AND TECHNIQUES OF FINANCIAL ESTIMATION
It is evident that the success of any institution hinges on a consistent and sufficient influx of finances, and this applies to libraries as well. Sound financial management rests upon accurate and effective estimation. Similar to governments, institutions, individuals, and families, libraries must engage in financial estimations to fulfill their needs and allocate resources appropriately. The process of estimating how much funding a library requires hinges on factors such as its age, jurisdiction, the quantity and quality of reading materials, the number of readers, and other relevant aspects.
Several significant bases for financial estimation in library budgeting include:
i) User population and its demographics.
ii) The nature and type of information sources to be acquired (media).
iii) Services to be offered in alignment with library objectives.
iv) Identification of unmet service demands or pressures (often a crucial factor in determining financial needs).
v) Established national and international standards that define the minimum requirements for materials, personnel, and operational funds for a library of a given size.
vi) Consideration of rising prices of reading materials and inflation. Three commonly employed methods for estimating library finances are the per capita method, the proportional method, and the method of details. These approaches are elaborated upon in the subsequent sections.
METHODS AND TECHNIQUES
Per Capita Method
Proportional Method
Method of Details
Per Capita Method : In the per capita method, a minimum amount is established per individual, which is deemed essential for delivering standard library services. The determination of this amount takes into account factors such as the educational and cultural standards of the community, future expectations, per capita income, average cost of reading materials, and library staff salaries. The per capita estimate can be based on either the number of literate persons or adults, although the more reliable approach is to calculate library finance per head of the population. For instance, the University Grants Commission Library Committee (1957) suggested that a university allocate Rs. 15 per student and Rs. 200 per teacher for acquiring reading materials. The Kothari Education Commission in 1964-66 recommended a norm of about Rs. 25 per student and Rs. 300 per teacher per year. Ranganathan proposed that university and college libraries spend Rs. 20 per student and Rs. 300 per teacher. In schools, a per student allocation of Rs. 10 for libraries was recommended. For public libraries, Ranganathan suggested an expenditure of 50 Paise per capita back in 1950. However, these per capita norms are outdated and no longer applicable. Per capita figures should now be considerably higher than those prescribed decades ago, as they do not account for inflation and devaluation. It might be more prudent to relate the per capita amount to indices such as the cost of living, which would allow for automatic revision of the per capita norm.
Proportional Method : In the proportional method, a predetermined proportion of the institution's overall budget is allocated for library purposes. This approach assumes that authorities will provide sufficient finances to libraries within a specified minimum limit. Adequate support is typically measured as a percentage of the institutional budget designated for the library.
In India, various standards have been proposed to determine this allocation. The University Education Commission recommended that 6.5% of a university's budget would be a reasonable expenditure for its library, with the range varying from 6.5% to 10% depending on the library's development stage. However, most Indian universities allocate around three percent of their total budget to libraries. For colleges, authorities generally agree that allocating four to five percent of the total expenditure to the library is appropriate. Ranganathan suggested that public libraries should allocate 6 to 10 percent of their total budget. It's worth noting that this proportional budgeting method can lead to significant disparities in special libraries, as high-tech and capital-intensive organizations tend to have larger budgets compared to pure research, social science, and humanities institutions.
Method of Details : The comprehensive method of estimating library finances takes into account all categories of expenditure in the library's budget, both recurring (current) and non-recurring (capital) expenditures. For estimating the finances of public libraries, Ranganathan recommended using the circulation of reading materials as a basis for recurring/current expenditure and non-recurring/capital expenditure. Similarly, the Government of India Advisory Committee for Libraries (1957) adopted a similar approach for estimating the financial requirements of a nationwide public library system. The UGC Library Committee (1957) proposed a staff formula to determine the required number of library staff members for college and university libraries, along with their respective pay scales. The total cost of the staff could be calculated using this formula. Additionally, the Committee suggested a per capita expenditure formula for the cost of books and other reading materials. In some situations, a combination of the above methods may be considered ideal for estimating library finances. This approach ensures a more comprehensive and balanced estimation of the budgetary requirements based on different factors.
Out Look :
1) The methods of budgeting include:
(i) Line item budgeting,
(ii) Formula budgeting,
(iii) Programme budgeting,
(iv) Performance budgeting,
(v) Planning-programming budgeting system, and
(vi) Zero-based budgeting.
2) Zero-Based Budgeting (ZBB) is a budgeting approach that involves estimating expenditure for specific programs and activities based on their performance, without reference to past expenditure. It requires justifying every activity anew, starting from zero. Essentially, the entire budget has to be justified from scratch. 3) A library budget is a financial plan that outlines the funds allocated to a library and estimates the expenditures for a particular fiscal year. This plan guides the library's functions, programs, activities, and services over the year. It serves as a tool for control, communication, coordination, evaluation, and motivation. 4) The methods of estimating library funds are: i) Per capita method: This method determines a minimum amount of money per student, faculty member, or research scholar in university and college libraries. ii) Proportional method: This method allocates a fixed percentage of the total budget of the parent organization's research or education budget to the library. iii) Method of details: This method involves accounting for the actual amount of expenditure spent on each item in the budget.
Keywords: -
Budget: A financial and/or quantitative statement prepared to achieve specific objectives within a defined period.
Budget Centre: A segment of an organization managed by a responsible individual where budgets are prepared and compared to actual performance.
Cost-Analysis (Analysis of Cost Behavior): Evaluating how costs and expenses react to changes in activity levels, including fixed, variable, and semi-variable costs.
Cost Centre: A department, person, or item in an organization where costs can be ascertained and used for cost control or product costing. Financial Estimation: Estimating the monetary needs required for the operation of an institution.
Financial Forecasting: Projecting expected financial conditions and operational results based on anticipated circumstances.
Flexible Budget: A budget that adjusts according to changes in activity levels and considers variations in fixed and variable costs.
Operating Statement: A summary of an enterprise's operating costs, revenues, and profit margins for a specific period.
Profit Centre: A responsibility center where the manager is accountable for both revenues and costs, leading to the resulting profit.
Prospective Pricing: Establishing prices before the service is rendered.
Responsibility Centre: A group of cost centers managed by a "responsible" individual.
Restricted Funds: Grants or donations with specific purposes, allowing funds only to be used for the designated objective.
Unit Cost: The expenditure associated with producing one unit of a good or service.
Unrestricted Funds: Funds with flexibility to be reallocated across different purposes or categories.
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