A program budget is often used for ongoing services offered by a company or a municipality. The primary difference between a program budget and most other budget formats is that the program budget is focused on the requirements to get the job done and not on making sure there are the financial resources to do so. The program budget is developed to determine if the project can be financed or if it should be discontinued. There are several disadvantages to a program budget that you should be aware of before using one.
Because a program budget is developed without regard to available financial resources, it can take several years before you find ways to properly fund a program budget. Program budgets are developed with specific goals in mind, and the finances outlined in a program budget are difficult to alter. It can take a company or municipality years to make sure that there is sufficient funding available to maintain a program budget. During that adjustment period, other budget items may suffer, and there will be difficulties in creating a balanced budget.
Municipalities that develop several program budgets may wind up overlapping their efforts and causing budget planning issues. For example, the streets department may include temporary street repair in its program budget, and the city summer employment program may also include street repair for its temporary seasonal employees. The overlapping of services causes an inefficiency in the budgeting process that can lead to double-spending.
A program budget lays out the costs to run a program and what goes into those costs. When a program budget is approved, it is done so with the intention of providing services to a group. If the budget is incorrect, it cannot be adjusted. For example, if the program budget estimate for city snow removal is low for a particular year, then the budget must be supplemented by other funds. Those other funds may mean the city has to borrow money or shut down programs that are not covered under a program budget. In this way, bad planning in a program budget can have a wide-sweeping effect on the financial health of the organization.
A program budget that supplies a critical service to the community can be difficult to analyze. It can be challenging to try and place concrete performance measures on services that have multiple layers of administration. For example, the summer reading program in a school system seems to be a required service, but it can be difficult to gauge the effectiveness of program budget elements, such as the number of teachers, the number of books available and the number of hours the program is available to the students.