Partial Budgets

A partial budget is used to calculate the effect on business margins (and thus profits) of a proposed change in a portion of the farm business. It uses only the costs and returns that alter as a result of the proposed change, providing an indication of the potential improvement in business performance and a measure of how existing farm enterprises, and the business as a whole, may be financially affected.

As an example applicable to a dairy unit, it is possible to estimate the effect on the farm business of contracting-out the rearing of replacement heifers. It means that the costs associated with labour, feed, provision of housing and bedding will all be significantly reduced, but must account for the extra cost of paying the contract rearer.

By budgeting these savings and proposed costs, it is possible to assess whether the planned change is financially viable. Of course there may be other benefits of a change to the business that are not financially-related and these need to be taken into account, but the partial budget is the first consideration when assessing such changes.

The partial budget should include the projected extra revenue, in the case of a capital investment, and this figure can be used to calculate payback time and expected Return on Investment.

A simple means of setting-out a partial budget is described here.

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