This section describes the process used for eliciting and agreeing an appropriate Budget Framework (i.e. a list of budget items) in Resources Now (RN). Several methods may be used, either separately or in combination. In practice, it is usually found that subsequent stages of RN allows an appropriate Budget Framework to be evolved intuitively.
The Budget Framework, or working list of budget items, is often given in advance. It is the schedule of items, grouped if necessary, which decision-makers are accustomed to working within respect of the budget concerned.
However, decision-makers may want to revise, modify or systematically reconstruct the Framework. This particularly arises where:
- the budget items inadequately represent the organisation's operational work,
- the Budget Groups artificially group items together so they cannot appropriately be considered together and compared.
The classification (or reclassification) process may be undertaken intuitively, by direct assignment, or standard clustering, factor analysis or principal component techniques may be used to obtain the classification - e.g. optimization agglomerative techniques, centroid analysis, monothetic and polythetic divisive techniques, association analysis, density search techniques, etc. (Everritt, 1974, Tyron and Bailey, 1970). Within the Priority Systems approach, fuzzy set scaling is often commonly used (Wang and Chang, 1980; Zadeh, 1978), in combination with multivariate mixture analysis (Wishart, 1970) and repertory and socio-grid (Kelly, 1955, Bannister, 1970). However, it is usually found that the allocation of priorities by means of judgement analysis, prompts decision-makers to evolve the classification of budget items which they find most suitable. The applicability of a systematic priority decision procedure to the Budget Framework provides a useful test of the appropriateness or otherwise of the Framework and a practical indicator of the commensurability of budget items.
If appropriately structured, the Budget Framework allows financial allocations made at the higher levels (e.g. in terms of market and product range, or clientele and service groupings) to be disaggregated to provide specific allocations at the lower levels of analysis (e.g. in respect of specific products and consumer needs). Conversely it allows allocations at lower levels aggregated to provide global allocations at higher levels (Saaty, 1980). The decision-makers' priorities are appropriately preserved throughout this aggregation-disaggregation process. This enables budgetary decisions to be made at the level appropriate to the decision-maker's capability and concern (Jagues et aI, 1978).
The Budget Framework provides the basis for a formal specification of the decision issue. The general form of the key issue in financial planning and budgetary decisionmaking is: what are the relative priorities of the budget items, hence the allocations of available finance across those items in the light of all other relevant variables and constraints?