The Boundary Between Planning and Incremental Budgeting: Empirical Examination in a Publicly-Owned Corporation

S. K. Lioukas and D. J. Chambers
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S. K. Lioukas: London Graduate School of Business Studies
D. J. Chambers: London Graduate School of Business Studies

Management Science, 1981, vol. 27, issue 12, 1421-1434

Abstract: This paper is a study within the field of public budgeting. It focuses on the capital budget, and it attempts to model and analyze the capital budgeting process using a framework previously developed in the literature of incremental budgeting. Within this framework the paper seeks to determine empirically whether the movement of capital expenditure budgets can be represented as the routine application of incremental adjustments over an existing base of allocations and whether further, forward-looking adjustments can be found. Its setting is a British publicly-owned corporation. The paper proposes an extended model of incremental budgeting which explains absolute change in budget allocations by introducing variables expressing: current expenditure outturn, over- or under-spend of previous allocations, previous budgetary cuts, and wider financial pressures in the corporation's environment. Planning variables are then included in an attempt to uncover purposive behavior. The analysis reveals different patterns of allocation for peripheral and for mainstream investments. The former appear to grow in an incremental fashion with no response to leading planning variables. The latter exhibit responsiveness to planning variables, and allocations do not take the form of routine incremental adjustments to the existing base. An interpretation of the results is undertaken. The analysis points to revisions of existing theory and suggests fresh ways of looking at, and systematically modeling, the organizational system of resource allocation.

Keywords: decision process; resource allocation; incrementalism-expanded model; planning; public capital budgeting (search for similar items in EconPapers)
Date: 1981
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:27:y:1981:i:12:p:1421-1434

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