STEP 4. COMPAREComparing the estima

STEP 4. COMPARE
Comparing the estimated expenses with the estimated income is usually
very revealing. It may be clear in the process that some activities will have
to be given up if the projected budget does not balance. In fact, if management
discovers that income is adequate to cover all expenditures at this
point in the budgeting process, there should be concern that the organization
is not reaching far enough or being ambitious enough in its planning.
In evaluating one program activity against another, management needs to be
careful about using the criterion of cost-effectiveness in the pure sense.
Typically we think of cost-effectiveness as the return on investment with a
large value gained for a small cost. While cost-effectiveness or breakeven
are concerns, the mission may dictate that the organization should carry on
certain activities that are not cost effective, at least in the short term. Some
activities will have to be conducted in order for the organization to fulfill its
mission, even at an apparent loss. An example would be having a small
number of one species of animal. As most managers know, the care for a few
animals is usually not cost effective and might necessitate cost subsidization
until the numbers grow.
It also might be beneficial to spread some costs where specific service
charges are hard to allocate, such as animal health, to all animals and not
charge on a case-by-case basis. Similarly, one would not want to forego
education, certification, and awards simply because income realized from
these activities is not readily apparent. Thus, cost-effectiveness is only one
criterion but certainly not the only one. The primary criterion should relate
to the mission of the organization, its purposes, goals, and objectives.