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Types of budgeting - Coggle Diagram
Types of budgeting
Flexible Budgeting
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Advantages:
- Reflects actual conditions and performance levels.
- Facilitates better decision-making and control.
Disadvantages:
- Requires accurate forecasts and assumptions for flexibility.
- May complicate budget management and tracking.
Incremental budgets
Disadvantages:
- Tends to perpetuate inefficiencies or outdated spending patterns.
- May not encourage rigorous cost control or innovation.
Advantages:
- Quick and easy to implement.
- Focuses on incremental changes rather than re-evaluating every budget item from scratch.
- Provides stability in budgeting.
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Changes to the budget are typically incremental, with adjustments made based on factors like inflation, anticipated growth, or changes in costs.
Zero-base budgets
Budgets are built from the ground up, requiring departments to justify every dollar of expenditure.
Each expense must be justified based on current needs, objectives, and expected outcomes
Advantages:
- Forces a comprehensive review of expenditures.
- Promotes cost consciousness and efficiency.
- Helps identify and eliminate unnecessary expenses.
Disadvantages:
- Time-consuming and resource-intensive
- Requires detailed documentation and analysis for every budget line.
- May be challenging to implement in large organizations with complex structures.
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Cash Flow Budgeting
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Cash flow budgeting focuses on managing and forecasting cash inflows and outflows over a specific period
Advantages:
- Helps in managing liquidity and working capital.
- Assists in identifying potential cash shortages or surpluses
Disadvantages:
- May overlook non-cash transactions and long-term financial health
- Requires accurate cash flow forecasting