Variance and Deviations in the Budgets of Regional Enterprises as an Element of Risk Measurement in the Probabilistic Model

The aim of this article is to develop models that can measure probabilistic budget volatility risk in a manner that is not dependent on the type of cost or financing unit. Budgets are essential tools in facilitating the management process of any organization, while budget control helps optimize resource allocation and enhance operational efficiency. Using the methodology of budget deviation analysis can significantly improve the management of organizational units. However, the authors identify a research gap in terms of both methodology and application when it comes to analyzing the risk of budget variances. To address this, the authors develop models based on the theory of extreme values. The models can determine the deviation level for a specific probability level and estimate the limit level of deviation for assumed probabilities. These models can be used to holistically evaluate the level of budget implementation in the enterprise, compare the quality of budget implementation overtime and across units, and identify materiality limits of budget variances. To validate the models, empirical data from the budget control system of a major European city university was used. Empirical distributions obtained from the data were used to determine budget variances that indicate the level of deviation for a given probability level.