Line item budgeting involves developing descriptive revenue and expenditure categories for a parent company's general budget, or for its special programs or projects. It is a planning and asset management tool because it requires identifying the total available revenue and each of the expenditure requirements necessary for overhead costs, as well as associated activities and tasks.
Goals and Objectives
The line item budget is a commonly used financial accounting technique used to forecast costs for expenditures that ideally support an organization's strategic business goals and objectives. The aim of a budget is to directly match financial resources to action plans that further business objectives. As such, the line item budget might be viewed within organizations as a strategic planning tool.
Managers generally develop line item budgets as monthly budgets for managing programs and projects. The budget format starts with the total amount of revenue available for the program or project. Cost estimates for descriptive categories of expenses are allotted separate lines and given a monthly budget allocation based on cost estimates for the category. This might include, for example, line items for labor, leases, equipment and supplies. The specific line-item designation will be based on the particular demands of your activities and task.
To develop accurate cost estimates, the line item budget requires coordinating with key parties necessary to carry out the activities and tasks associated with each budget. This is a necessary part of forecasting costs for each line item category. For example, human resource costs require obtaining accurate estimates associated with wages, salaries and any temporary labor expenses that might be required during the budgetary time period.
The line item budget serves as a basic cost monitoring matrix that provides a manager an element of control over expenditures. Budgetary review sessions are used at times to assess budgets at key milestones during the life cycle of a program or project. Each line item is evaluated to determine whether overruns have occurred or are likely to occur based on the line item budget, rate of cost expenditures and outstanding requirements.