ABSTRACT
Budgeting is one of the most important but resource-intensive activities in nonprofit financial management, with the annual line-item budget being the most widespread budgeting model used by nonprofit organizations of all sizes. Contingency-based studies point to specific contextual variables that explain the ubiquity and diffusion of the annual line-item budget, focusing on environmental uncertainty – measured as diversity, turbulence of funding streams, and technological and programmatic complexity. This high degree of environmental uncertainty often leads nonprofits to prioritize funder requirements of control, accountability, and transparency in their budgeting processes, by their adoption of this traditional line-item budget model. Regardless, community problems faced by nonprofits require years of planning, implementation, and data gathering to address. With its emphasis on control and accountability, an annual line budgeting approach can often lead to inefficiencies and budgeting plans within organizations that are “de-coupled” from strategic and operational plans, as well as from program effectiveness, impeding the achievement of long-term strategic goals. As such, a multi-year (MY) budgeting approach can serve as an alternative, focusing on programmatic outcomes over revenue expenses. This chapter provides a case study of a large multiservice human service nonprofit employing a MY model, alongside a review of the budgeting approaches in an international setting, offering areas for future research.
