2. THE PRESENTATION WILL SHOW
HOW THE FUNCTIONS, TYPES AND
PURPOSES OF BUDGETS THROUGH
VARIOUS CREATIONS ENABLE A
BUSINESS TO SEE INTO THE
FUTURE.
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Introduction
3. Functions of Budgets
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Budgets are action plans that …
Cover a short time span
Take a long-term perspective
Focus resources for a specific project
Accounts for income and expenditures
Budgets
plan, coordinate, c
ommunicate, monit
or & evaluate
4. Budget Types & Purposes
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The various types of budgets:
Short-term
Long-term
Fixed
•Rolling
Incremental
•Zero-Based
5. Short-term Long-term
Typically covers
year, but may be
month-to-month
year budgets
are designed for
companies concerned
with profitability over
a period
Types & Purposes
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6. Fixed Rolling
Covers a fiscal year at
the end of that year a
new budget is prepared
A plan that is
continually updated
so time frame
remains stable
Types & Purposes
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7. Incremental Zero-Based
Uses historical
figures, managers look at
previous period’s
budget, actual results and
future expectations
Begins each new
budgeting cycle from zero
base or ground up
Types & Purposes
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8. Assumptions
Tips for setting:
Use historical data as a starting
point
Trust your own experience.
Make educated guesses where
necessary
Listen to intuition even if it can’t
be verified
Seek out information
Talk & listen to knowledgeable
people
Know when to be a risk taker
and when to be conservative
Test your assumptions
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9. Operating
Budget
An agreed upon pact between
management.
Structured as follows
Revenues – (Cost of Goods Sold +
Sales, General and Administrative
Costs) = Operating Income
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10. W E A L L K N O W T H A T B E S T L A I D P L A N S C A N
F A L L A P A R T , E F F E C T I V E B U D G E T I N G C A N
H E L P T H E C O M P A N Y A N T I C I P A T E
F L U C T U A T I O N S , D O W N T I M E S A N D C O S T
S P I K E S .
D I A N E P A L U M B O
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Conclusion
“Your budget
is your bible”
Hint: They are strategic plans expressing expected resources required, and the anticipated returns over time.Remember: Budgeting is like planning for a trip by allowing for sufficient resources to make it to your destination.
Critics have complained that traditional budgets are either too-long or short with inappropriate measures.Budgets have been developed that address some of these issues.
Short-term is appropriate for start up companies and focuses on immediate cash flowLong-term some budgets like that of the congressional budget office have projections and estimates over a 10-year period
Fixed: Can be reviewed regularly so adjustments and corrections can be madeDisadvantages of a rolling budget is that the planning process becomes too-time consuming
Disadvantages of incremental budgets are similar to those of traditional budgets. Also managers can develop a use-it-or lose it mentality in which they feel they must use all budgeted expenditures by the end of the period.**Advantages of Zero-based requires more in depth analysis
NOTE: Assumptions should be sought from sources with the best information
