Budgeting Process

Описание: Explain the budgeting process.

Budgeting is followed in the large corporations collectively by various department in the organization. These departments prepare their plan keeping them in alignment with the organization goals, which are set by the top management team in the organization. Each department prepares these plans so that they help the organization realize the goal. Managers from each of these departments come up with the various allocations for

Capital requirements
projections of sales
operating costs
Overhead costs etc. Considering these elements, the operating profits and the returns on the investment they want to use are computed.

Budget will project all these values over the next fiscal/financial or calendar year. During this process,

each department prepares its plans and the estimated budget.
These budget plans are then presented to the upper management.
The upper management will then negotiate and propose the required changes in the budget allocation.

The budget planning document contains

Description of the details
Documentation
Reasons justifying the numbers quoted.

The road-map for the operations over the upcoming year depend solely on the approved budget. In an ideal scenario, there should be monthly or quarterly budget reviews to monitor the effective utilization of the budget. During these reviews, the deviation between the allocated budget and actual budget spending is tracked and if required additional budget might be approved. The performance of the managers usually is decided by how effectively they justify the budget allocated to them.

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