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The budgeting process rarely inspires great enthusiasm. Who can get excited about a series of long meetings leading to occasional confrontations and even arguments regarding how to allocate funds?

Even though we often view budgeting as an unpleasant event that must be endured, the truth is that effective budgeting is the only way to ensure church funds are wisely used to further ministry goals. And the biggest budgeting challenge isn't balancing inflows with the outflows, but in how we measure the effectiveness of the money we spend. To do this, we recommend using an approach called "Program Budgeting."

There are three approaches for the preparation of a church's annual operating budget: (1) Incremental budgeting; (2) Zero-based budgeting; and (3) Program budgeting.

Incremental budgeting, often called line item or traditional budgeting, is based on the question, how much did it cost last year? Most churches follow this budgeting approach. Incremental budgeting takes this year's budget as the basis for next year's budget and makes adjustments to each item for anticipated cost or activity changes.

The incremental approach is easy to prepare and easy to understand. But there is little emphasis on evaluating prior activities and costs. This approach relies on the past, which can't change, rather than the future, which can change.

Zero-based budgeting starts every program and activity at zero dollars. This forces leaders to look closely at their programs—nothing is taken for granted. This is a very challenging and time-consuming exercise. Still, it is useful for churches whose programs and methods of operation carry forth year after year without question. Some suggest zero-based budgeting as a useful approach about every five years to provide a fresh look at all programs and activities.

In program budgeting, all programs and activities are evaluated, based on effectiveness at their current levels of funding and on their potential. Program budgeting is superior to the incremental method because it forces the church to plan before preparing the budget. The church identifies each program or activity, the needs each program serves, and the past effectiveness of meeting those needs.

Program budgeting provides a better understanding of what each program attempts to do. At the end of the year, program costs are compared with the benefits achieved. It also offers congregational members a clear picture of what their contributions are supporting. Unfortunately, this method requires more time than incremental budgeting. But the time spent will ensure that every dollar is wisely spent.

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