Which term describes isolating budget components so that one item does not affect others?

• A. Centralization
• B. Consolidation
• C. Compartmentation
• D. Segregation

Answer: (C)

Compartmentation is about dividing a system into separate, isolated sections so that changes or problems in one part don’t spill over into the others. In budgeting terms, this means creating distinct budget components or cost centers for different items or areas (like separate budgets for HVAC, electrical, and custodial work). When each area has its own compartment, a cost spike or overrun in one compartment won’t automatically affect the totals in the others, making it easier to manage, monitor, and hold responsible the right parts of the operation.

Centralization would pull budgeting control into a single point, which tends to couple items together rather than isolate them. Consolidation means merging multiple items into one larger set, reducing separation. Segregation is a broader term for separating things for safety or compliance, but it doesn’t specifically imply isolating budget components to prevent ripple effects in the way compartmentation does.