Budgeting Basics and Beyond

12.3. Analysis and Evaluation

Budgeted expenses should be documented as to how the amounts are derived and the source of information. Costs should be evaluated by type. They should be compared to sales over the years and to competing companies. If cost increases are substantially disproportionate to sales or production, the reasons must be found and, if necessary, corrective action taken. Costs may also be related to direct labor hours, operating income, and number of transactions.

Many administrative costs are not subject to specific measurement, standardization, or predication. The manager should consider how many employees answer to him or her, what their job responsibilities are, and what objectives are to be met.

A manager in the engineering area should segregate the budget into suitable categories, such as product enhancement, operating difficulties, and cost reduction. The deadline dates for each major work stage should be stated.