Budgeting Basics and Beyond

1.1. Planning

Budgeting is a planning and control system. It communicates to all members of the organization what is expected of them. Planning is determining the activities to be accomplished to achieve objectives and goals. Planning is needed so that a company can operate its departments and segments successfully. It looks at what should be done, how it should be done, when it should be done, and by whom. Planning involves the determination of objectives, evaluating alternative courses of action, and authorization to select programs. There should be a good interface of segments within the organization.

Budgets are blueprints for projected action and a formalization of the planning process. Plans are expressed in quantitative and monetary terms. Planning is taking an action based on investigation, analysis, and research. Potential problems are searched out. Budgeting induces planning in each phase of the company's operation.

A profit plan is what a company expects to follow to attain a profit goal. Managers should be discouraged from spending their entire budget. Managers should be given credit for cost savings.

Budget planning meetings should be held routinely to discuss such topics as the number of staff needed, objectives, resources, and time schedules. There should be clear communication of how the numbers are established and why, what assumptions were made, and what the ...