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The AMA Handbook of Financial Risk Management by John J. HAMPTON

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Chapter4Operating Budgets

NATURE OF BUDGETING: IMPORTANCE OF THE OPERATING BUDGET

Peter Drucker, an important business strategist, claimed that the only strategic goal of an organization is to create a customer. He believed that such a goal statement oriented the organization to the market. It focused everyone on a common business purpose. This is the role of the operating budget.

Is a single goal too narrow for those who develop budgets? Maybe not. Does the firm ask itself, “What is our business?” and, “Who are our customers?” Or does it take last year’s numbers and increase them based on the rate of inflation or changing conditions in current markets? What is the financial risk? Simply stated, you may be in the wrong business, or you may not ...

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