Budget definitions are often confusing. For example, we may mean money when we talk about resources or we can mean a prescribed quantity of materials or number of staff instead of actual funds. For a number of reasons connected with the way spending is managed, these are not always interchangeable.

At whatever level and whether they are operating in commissioner or provider mode, budget managers purchase or commission resources for consumption within their internal environment and provide enhanced benefit, value-added goods and services, care and treatment to their external environments.

A budget is a set amount of money or a ration of resources allocated to an authorised manager for a specific purpose and intended to cover a defined period of time. 1

Sometimes it is also the description of an organisation’s total funds, which may be expressed as a single amount or as a comprehensive list of individual budgets.

Methods of budget calculation may vary and spending patterns will fluctuate, but it is essential that at all levels in the organisation, there is an underlying comprehension and agreement on what is expected.

It follows that a flow of relevant and accurate information should be established by which performance is interpreted and measured, appropriate intervention is taken and future activity is planned.

Generally speaking, there are two ways of reporting performance. One examines spending against a target and reports the variation; the other subtracts total spending from the total amount available and reports what is left.

This chapter examines the basic principles of budgetary management in the context of the internal environment and looks at differing requirements when managing once-and-for-all expenditure as opposed to the continuity of day-to-day demands.