What Is a Budgetary Allocation?

by Mark L. Ryckman

Budgetary allocations are integral components to an annual financial plan, or budget, of all organizations. They indicate the level of resources an organization is committing to a department or program. Without allocation limits, expenditures can exceed revenues and result in financial shortfalls. Anyone working with budgets should understand how they are used and the limitations they provide.


A budget is a financial plan used to estimate revenues and expenditures for a specific period of time. It is a management and planning tool, not just an accounting document. It assists in the allocation of resources. A budget allocation is the amount of funding designated to each expenditure line. It designates the maximum amount of funding an organization is willing to spend on a given item or program, and it is a limit that is not to be exceeded by the employee authorized to charge expenses to a particular budget line.

Developing Budgetary Allocations

Budgets are usually developed for 12-month periods. When developing a budget, revenues are usually estimated first to determine the level of resources that will be available in the upcoming budget year. Based on the estimated resources, expenditure limits, also called budgetary allocations, are assigned to each budget category. When developing budgetary allocations, all needs of the organization are taken into account and decisions are made where best to allocate available money.

Budget Category Allocations

Budgets are usually divided into departments and program units. This allows for easier identification of the resources allocated to specific programs and functions. Each category can be made of several budget allocations, referred to as line items, for the specific needs necessary to support the program or overall department operation.

Adjusting Budgetary Allocations

Budgetary allocations might not always be sufficiently estimated. This can happen when adequate funding for predictable or reoccurring expenses are not included in the budget. This might require the budget to be modified after adoption to account for the shortfall. Typical corrections will include transferring funds from other allocation categories or from the organization's surplus, sometimes referred to as savings. Just as budgetary allocation estimates can be insufficient, revenues can be underestimated. This can happen if a downturn in the economy occurs after a budget is adopted, thus harming revenue streams. Insufficient revenues might require the need to reduce budgetary allocations in order for expenditures not to exceed revenues at the end of the budget year.

Monitoring Budgetary Allocations

Budgetary allocations should be routinely monitored to ensure the amounts budgeted are sufficient to meet expenditures. It is important to have a tracking system in place for all purchase orders and bills. The purchase orders and bills should be matched regularly against the budgetary allocation to ensure sufficient funds exist for the remainder of the budget year.

About the Author

Mark L. Ryckman has more than 20 years of senior management and leadership experience. He provides a wide variety of consulting services through MLR Management, LLC. Ryckman holds a Bachelor of Arts in public management and a Master of Public Administration, both from the University of Maine.

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