A performance budget is a specific budget that tracks the performance of a business over a given period of time. It is not an operational budget that tracks the spending and earnings of a business or government entity. Instead, it provides the sales numbers and costs of production, so the reader can see how many products have been developed, for what costs and how long the process took. In other words, a performance budget shows how well a company is performing in terms of effective costs and labor hours.
The purpose of a performance budget is to track how well a company or government entity is doing over a short-term period. Performance budgets are commonly done on a quarterly or biannual basis so the executives can continuously track the performances and budget with the results. The results of each performance report are compared to see if the performance has increased, decreased or remained steady.
Role in Budget and Production
The results of the performance budget have an effect on the overall operational budget and the production of the products being sold. If the performance budget shows that the performance has increased during a quarterly period, the production of products must also increase to keep up with the demands of the market. This means the overall operative budget for the business must be altered, as more raw materials, supplies, equipment and workforce must be factored into the increased production.
The main sections in a performance budget can vary depending on the business in question. Commonly, the performance budget will have a product section that explains how many products were created during a certain period of time, how many work hours were dedicated to the production and how much the production cost. The production cost is multiplied by the amount of products to get a total worth of the products in question. Each category is added up, so the business executives know the total amount of work hours of the given period, the total amount of products developed and the total production costs. The total worth of the products is also calculated and used as a point of comparison.
The performance budget results only show how the business or government entity is performing at the given time in question. It does not show how it performed months before or show predictions in terms of how well the executives expect it will perform. A longer performance budget report will show yearly comparisons by presenting the totals for each quarter or biannual period. This will help executives determine how well the company is performing over a long-term period, as the performance budget itself is based on short-term performances.