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Budgeting

Budgets must align with a business's strategic goals to be effective. The budgeting process involves creating long-term (5-year) and short-term (1-year) budgets that convert strategic plans into actionable, financial blueprints. Key budget targets may include sales growth, production capacity, and departmental expenses. Issues such as the inter-relationship between various budgets and business activities, especially in manufacturing, require careful consideration. Establishing a Budget Committee and assigning a Budget Officer are essential steps in the process. Understanding incremental versus zero-based budgeting is crucial for effective budget preparation.

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Budgeting

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  1. Budgeting

  2. Budgets must be made compatible with a business’s strategic objectives. Steps to create a budget comprise…

  3. Long-Term (5 yr.s?) Short-Term (1 yr.?)

  4. Budgets convert strategic plans into short-term, actionable blueprints, and are usually expressed in financial terms. Budget targets would include things like….

  5. Issues in Budgeting

  6. Inter-relationship between different budgets and business activities (in a manufacturing business)

  7. Sometimes, things other than sales (e.g. production capacity) can be the limiting factor.

  8. It is also possible to have subsidiary, “vertical” budgets

  9. How budgets help managers

  10. Formally establishing a budget

  11. Often a Budget Committee is established to set the budgets, and a Budget Officer (often an accountant) is assigned to carry out the budgeting assignments.

  12. Incremental vs. Zero-Based Budgeting

  13. Continued next slide…..

  14. Next lecture: Budget preparation.

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