Budgeting Basics and Beyond

Chapter 2. Strategic Planning and Budgeting: Process, Preparation, and Control

Although it differs among companies, planning is the direction of the company over a period of time to accomplish a desired result. Planning should link short-term, intermediate-term, and long-term goals. The objective is to make the best use of the company's available resources over the long term. Budgeting is simply one portion of the plan. The annual plan may be based on the long-term plan. The annual budget should be consistent with the long-term goals of the business. There should be a climate conducive to planning and friendly relationships. An objective of planning is to improve profitability. Plans are interrelated.

In planning, management selects long-term and short-term goals and draws up plans to accomplish those goals. Planning is more important in long-run management. The objectives of a plan must be continually appraised in terms of degree of accomplishment and how long it takes to implement. There should be feedback as to the plan's progress. It is best to concentrate on accomplishing fewer targets so proper attention will be given to them. Objectives must be specific and measurable. For example, a target to increase sales by 20 percent is definite and specific. The manager can measure quantitatively the progress toward meeting this target.

The plan is the set of details implementing the strategy. The plan of execution typically is explained in sequential steps including costs and timing ...