3.7

Budgets

Outline of a financial year

Estimate of Income and expenses for a specific period

All departments have separate budget to form the master budget

Purpose
(PRIME)

Integration

Motivation

Responsibility

Evaluation

Planning

Budget Objectives

A plan n financial terms

Every manager is accountable for their budget

Coordination between departments to achieve budgetary objectives

Managers to monitor their performance through budgets

Budgets provide a momentarily performance measuring tool

Budgeting Techniques

Imposed Budget

Participitory Budget

Top-down

Bottom-up

Senior management set targets

Each department is a budgets target

Department manager to prepare the department budget

Department managers set draft targets

Budgets are combined and submitted to senior management

Quicker to prepare

Time consuming to prepare

Participative and motivational process

Budgets Preparation Technique

Incremental Budgeting

Zero Based Budgeting

Budget for the upcoming year is based on the current year results

Adjustable for any expected growth or decline

Suitable if the organisation is efficient

Encourage wasteful spending

Every budget is starting from zero base

Evert item to be justified for approval

Steps

Prioritise the packages

Allocate resources to packages

Defining activities

Decision packages

Eliminate packages where cost exceed the value

According to priority

Budgets and Business Planning

Behavioural Aspects of Budgeting

Budgets must be realistic and not demanding in an unachievable way

Budgets acts as control mechanism

Open communication helps in successful implementation

Benefits
(FMCC)

Forward Thinking (Problem Solving)

Co-ordination

Motivation

Control and Authorisation

Development of a business Plan

Identify and Assess strategic options the business might take

Select the strategic option and formulate a long term strategic plan, broken down into small short term plans such as Budget

Current Situation Analysis
(Position Analysis)

Perform, review, and control

Establish Purpose statement and objectives

Purpose Statement
(Mission statement)

Objectives

statement of intent about the essence of the business

how this purpose will be achieved

Analysing the current position of the business to contrast it to where it wants to be

Plans include targets for

Sales volumes and revenue

Inventories requirements

Receivables and payables

Labour requirements

Production requirements