Line-by-Line Budgeting

STRATEGY: On a yearly basis, complete a line-by-line review of the budget to flag potential areas of savings in contract services.

Line-item budgeting is the most widely used of all budgeting models and offers many advantages. It doesn’t require sophisticated financial skills and is comparatively easy to prepare. Minimum staff time and expertise is needed to create and track a budget completed in this manner. Also, line-item budgeting is straightforward and readily understood by school leaders. Budgetary review sessions can be used to assess budgets at key milestones during the life cycle of programs, and the simplicity of this system makes it easier for leaders to forecast, justify, and monitor revenues and expenditures.

Details

As the National Center for Education Statistics wrote in 2003, “The line-item budget approach has several advantages that account for its wide use. It offers simplicity and ease of preparation. It is a familiar approach to those involved in the budget development process. This method budgets by organizational unit and object and is consistent with the lines of authority and responsibility in organizational units. As a result, this approach enhances organizational control and allows the accumulation of expenditure data at each functional level. Finally, line-item budgeting allows the accumulation of expenditure data by organizational unit for use in trend or historical analysis.”

As a part of the budget review process, it is important to ensure that expenditures are being used effectively. While a line-item budget allows for a relatively simple and straightforward review, any review process needs to include data that is related to each line-item expenditure; the nexus of money spent and determined outcomes helps to shape budgetary decisions. For example, it is important to ensure that any contracted services have formative benchmarks or milestones written into contracts, and information from the review of these benchmarks will assist the budget review process.

First Steps to Consider

  • To prepare for the budget review, develop a process to gather data about budget items.
  • Conduct the budget review to assess key benchmarks or milestones.
  • Identify historical trends to inform budget preparation.
  • Coordinate with key parties necessary to implement activities to ensure that expenditures are accurately forecast.

* Develop a plan to communicate budgetary decisions to the community, as appropriate.

Complexities & Pitfalls

A line-by-line budget review could present conditions for micromanagement by leaders as attempts are made to manage operations with no performance information. In addition, the

results of this process may create superficial analysis of expenditures, which prevent in-depth analysis at each line item to determine if the expenditures continue to be viable or need to be allocated to a different activity. Lastly, this model is not good for dealing with questions of efficiency and the potential of future performance.

Common pitfalls

  • Superficial analyses of expenditures.
  • A spending rush of unused funds near the end of the fiscal year.
  • Little useful information to decisionmakers on functions and accountability of units.
  • An environment conducive to micromanagement.
  • Limited evidence of efficiency and potential of future performance.

Guiding Questions

  • Are the expenses in line with what was forecasted, or are they substantially lower or higher? If the latter, why?
  • Did costs increase for any budgeted activities?
  • How do the actual expenditures compare to revenues at the end of the year?
  • Is money being spent according to intention?
  • Is the school or district collecting the right data for the budget review process?
  • How much flexibility is available in the amount of control established over resources, depending on level of expenditure details?
  • Is the allocation/expenditure bringing the desire results?