Budgeting Basics and Beyond

24.11. Organizational Structure

The structure of a nonprofit entity may restrict its efforts to establish an effective budgeting system. One major reason may be the absence of a reliable responsibility structure. A responsibility system of budgeting divides the organization into work units, assigns individual responsibility for each activity of the unit, and classifies costs as controllable or noncontrollable by that unit. Managers use the unit budgets as a tool to control the areas of the organization for which they are directly accountable. Many nonprofit entities have recognized that although responsibility budgeting is a good tool for controlling expenditures; it does not provide sufficient control over services performed.

This recognition has brought to the surface the concept of program structure. The program structure aligns itself either with the types of services the organization renders or with the classes of individuals who benefit from its services. Nonprofit entities are not often organized along program lines. Their accounting systems do not typically support program concepts. In consequence, program costs are difficult to quantify and record on a consistent yearly basis.

The program planners should start by turning each possible strategy defined in long-range planning into specific actions. The following questions should be raised: What organizational functions does it involve? What groups does it reach? What objectives does it satisfy?

Several alternative strategies ...