A discretionary budget is an unspecified lump sum that states what the amount is for, what the maximum sum overall will be, and possibly specifies also a maximum sum per item. Discretionary budgeting is useful when the expenditure for each item is small in terms of value. The administrative cost of dealing with each item far outweighs the control benefit available. However, control is maintained within the lump-sum budget.Definition
Discretionary Budget FAQs
A discretionary budget is an unspecified lump sum that states what the amount is for, what the maximum sum overall will be, and possibly specifies also a maximum sum per item.
Discretionary budgets are useful when the expenditure for each item is small in terms of value. The administrative cost of dealing with each item far outweighs the control benefit available. However, control is maintained within the lump-sum budget.
The disadvantages include a lack of transparency and a lack of consistency in how costs are controlled throughout different parts of an organization, which results in a lack of accountability.
You need to estimate the costs for each item, add them up and then check that the sum is within the appropriate limit. You should also state who will have control over what is spent by whom, when it will be spent and perhaps even how much can be spent per item.
A no-discretionary budget provides a clear description of what has to be bought and how much this will cost, as well as the deadline for the purchase. It does not provide information about who will have control over what is bought or where/when it will be bought.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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