Budgeting ? what a concept
- By Rich Kellett
- Aug 03, 2000
A key concern of Webmasters is how to go obtain funding, which is vital
to agencies' ability to constantly improve and expand the offerings on federal
World Wide Web sites.
To compete in the budget process, Web managers should develop an understanding
of the federal government's investment lingo. This column provides an overall
definition of capital planning and lists several references for researching
more on the capital planning process. Without getting into technical financial
language, I'll attempt to summarize the concept of investing as it is defined
in the federal government.
Capital planning is the federal government equivalent of capital budgeting
in the private sector. Capital planning defines the concepts and processes
for making choices among competing investments for limited resources (dollars).
This activity is called investment decision-making.
Most people have the perception that profit in the private sector is real.
Not so. Money, profit and stock value are all conceptual matters just
as the federal equivalents of budgets, benefits and political goodwill are
Money is a concept. People seek money because of what we perceive it can
buy. Similarly, as agency workers, we seek budgets because of how they can
help us achieve our missions.
Profit is also a concept. It is not money, but it is denominated in dollars.
Many profitable businesses go bankrupt every year. How can that happen?
For instance, assume all the cash in a business has been used to build products
and that the products have been sold on credit. If the customers haven't
paid yet, the business would not have cash to pay salaries. If there is
no cash to pay salaries, even though the company is "profitable," the business
has to declare bankruptcy.
Profit is only a trend indicator as to whether the business will earn enough
"extra" cash in the future so that the owners can take some cash out of
the business bank accounts and place the excess into their personal bank
Benefits and profit are similar in nature. They help define whether a desirable
future can be achieved. Both require applying conceptual principles to defining
whether the business or project will achieve a future that is profitable
or, in the federal context, will deliver certain benefits.
Benefits are often intangible, but so is profit. Stock value is also a concept.
The public's perceived value of an Internet stock seems to depart often
from the "technical" value of a stock. A stock is worth what people think
it is worth based on decision-making that often has both emotional and technical
components. That sounds like citizen goodwill to me. A project's perception
of value by the public or Congress is similar to the perceived value of
a stock: It is what people think it is worth. Perceived public goodwill
has a mix of emotional and technical components.
What does this mean? Capital planning in the federal sector and capital
budgeting in the private sector are both attempts to project an uncertain
Capital planning (like capital budgeting) involves making educated guesses
at costs and future benefits, denominating the costs and future benefits
in dollars, and then comparing all projects simultaneously to define the
best mix of projects that provides the most "perceived value."
With this background in mind, you are ready to wade through the process
of capital planning. Unfortunately, financial issues are always a dense
subject. I suggest the following documents in the following order:
Kellett is founder of the Federal Web Business Council, co-chairman
of the Federal WebMasters Forum and is director of GSA's Emerging IT Policies