Project Management Accounting: Budgeting, Tracking, and Reporting Costs and Profitability, Second Edition

Planning for the Future

In the planning process, financial managers look at a series of conjectures in order to determine the company's path for a future time period. Many companies have extended multiple-year plans, but such plans are less detailed than an operating budget and are for guidance toward long-term objectives. What we will view here is a one-year forecast for Pontrelli Recycling, Inc. that will take into consideration decisions that the company will make about operations for the coming year.

Once we have gone through the forecasting process for the entire firm, we will look at the budget process for one of the projects that the decisions require, in order to see how the budget fits into the overall operating budget of the company and how decisions are made as to the viability of the project. We will then look at project execution, to see how the project budget is realized through the execution of the project and how project performance is tracked against the budget.

Pro Forma Statements

As we have seen in Chapter 6, pro forma statements can be used in the budgeting process. In this case, we will start with Pontrelli Recycling, Inc.'s statements as of December 31, 2005, and build future-looking statements. For a reference, we first create a baseline 2006 statement that predicts what business will look like if no changes are made. Next, we create documents that take into account the predicted costs and revenues that might result based on decisions that are made.

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