Partial budgeting is a procedure where receipts and expenses, which change with a change in organization or procedures, are listed in a systematic order. It is a process to allow a total farm budget to be fine-tuned. It allows the analysis of a defined change to see if the change would improve the total farm budget.
The steps in constructing a partial budget are to:
- State the proposed alternative or change that will be analyzed.
- Collect data on all aspects of the business that will be affected by the change.
- Classify or group the types of impacts that will occur by including expenses increased or reduced and receipts increased or reduced
The partial budget is based on the concept that a change in the organization of the business will have one or more of the following effects:
- Positive Economic Effects
- The change will eliminate or reduce some costs.
- The change will increase returns.
- Negative Economic Effects
- The change will cause some additional costs.
- The change will eliminate or reduce some returns.
The net change between positive and negative economic effects is an estimate of the net effect of making the proposed change in the total farm budget. A positive net change indicates a potential increase in income and a negative net change indicates a potential reduction in income due to the proposed change.