Budgeting Basics and Beyond

1.3. Budgetary Process

A sound budget process communicates organizational goals, allocates resources, provides feedback, and motivates employees. The budgetary process should be standardized by using budget manuals, budget forms, and formal procedures. Software, Program Evaluation and Review Technique (PERT), and Gantt facilitate the budgeting process and preparation. The timetable for the budget must be kept. If the budget is a "rush job," unrealistic targets may be set.

The budget process used by a company should suit its needs, be consistent with its organizational structure, and take into account human resources. The budgetary process establishes goals and policies, formulates limits, enumerates resource needs, examines specific requirements, provides flexibility, incorporates assumptions, and considers constraints. The budgeting process should take into account a careful analysis of the current status of the company. The process takes longer as the complexity of the operations increase. A budget is based on past experience plus a change in light of the current environment.

The six steps in the budgeting process are:

1. Setting objectives

2. Analyzing available resources

3. Negotiating to estimate budget components

4. Coordinating and reviewing components

5. Obtaining final approval

6. Distributing the approved budget

A budget committee should review budget estimates from each segment, make recommendations, revise budgeted figures as needed, and approve or disapprove of the budget. The committee ...