Budgeting Basics and Beyond

1.4. Budget Coordination

There should be one person responsible for centralized control over the budget who must work closely with general management and department heads. A budget is a quantitative plan of action that aids in coordination and implementation. The budget communicates objectives to all the departments within the company. The budget presents upper management with coordinated and summarized data as to the financial ramifications of plans and actions of various departments and units within the company.

Budgets usually are established for all departments and major segments in the company. The budget must be comprehensive, including all interrelated departments. The budget process should receive input from all departments so there is coordination within the firm. For example, operations will improve when marketing, purchasing, personnel, and finance departments cooperate.

Coordination involves obtaining and organizing the needed personnel, equipment, and materials to carry out the business. A budget aids in coordination between separate activity units to ensure that all parts of the company are in balance with each other and know how they fit in. It discloses weaknesses in the organizational structure. The budget communicates to staff what is expected of them. It allows for a consensus of ideas, strategies, and direction.

The interdependencies between departments and activities must be considered in a budget. For example, the sales manager depends on sufficient units ...