2. COST ACCOUNTING CONCEPTS FOR IS ORGANIZATIONS › 2.2 Budgeting Concepts › 2.2.4 Reporting Budget Information

2.2.4 Reporting Budget Information

The purpose of a budget is to provide a criteria with which
the relative "goodness" or "badness" of a particular level of
consumption can be assessed.  Providing this comparison is
the function of budget reporting.

The most basic and generally applicable form of budget
reporting is the comparison of actual charges to budgeted
amounts.  The budget-versus-actual comparison implies a
good/bad criteria with relatively little requirement for
interpretation and no "shades" of meaning.  However, the
interpretation still must be based on an understanding of the
management objectives.  For example, an actual expenditure
significantly under budget is likely to be perceived as
positive to an enterprise which is attempting to reduce
expenditures to a minimum.  However, the same comparison may
be unfavorable in an enterprise which is attempting to expand
rapidly to meet market demand.

Similarly, when attempting to address budget variances, the
magnitude of the budget as well as the percentage variance
need to be considered.  A one-hundred percent variance of an
item budgeted for $500 is less significant to the enterprise
than a one percent variance of a $1,000,000 budget.  CA MICS
Accounting and Chargeback provides a facility called the
Budget Overrun Fuzz Value to limit the reporting of
insignificant budget variances.

The use of historical budget reporting can add an extra
dimension to simple budget-versus-actual comparisons.  One
concern of many IS organizations is to maximize their ability
to proactively identify problems.  Simple budget-
versus-actual reporting only identifies expenditure problems
after the fact.  But, by trending the percentage of unused
budget authority over time, a potential budget overage in the
future can be anticipated and possibly avoided.
Historical analysis may also uncover errors in the
forecasting model used to develop the budget.  If an entity
has a budget which fluctuates in magnitude significantly from
period to period, an overage in one period may only indicate
that the forecast does not correctly identify seasonal
variances.  By comparing summarized budget and actual values
over several periods (for example, for a quarter), a single
period variance can often be seen in perspective.

Handled well, the budget reporting effort will yield
important management information, a clear understanding of
demand for IS services and how IS costs are distributed
within the enterprise.