Definition

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.

Frequently Asked Questions

What is a discretionary budget?

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.

What are the advantages of using a discretionary budget?

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.

What are the disadvantages of using a discretionary 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.

How do I prepare a discretionary budget?

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.

What is a non-discretionary budget?

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 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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