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Practical and Operational Theory of the

Budgeting

Mary Jane M. Asuncion

Don Juan Bo. School

Cuenca District

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What is a budget?

A Plan

A Limit A Schedule

A Reality Check

An Allocation

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Budget a definition

A lanned e!"ession of money# W"ight$% &''( A "actical foundation in costing# Routledge

)o" a defined acti*ity

Sho+s,

-ncome . /!enditu"e

0otal estimated costs

%efined e"iod of time

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Anothe" definition

A budget "ocess is a system of "ules

go*e"ning the decision1making that leads

to a budget2 f"om its fo"mulation2 th"ough

its legislati*e a"o*al2 to its e!ecution$

Karl-Martin !hrhart "oy #ardner J$rgen %on &agen and Claudia Keser Budget

Processes' Theory and !(peri)ental !%idence *o%e)+er ,

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budget hels

ant

*eed

can

Budget

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Why use a budget?

Stay +ithin a limit Cont"ol

)o"ecasting

%elegate

P"io"itise Wants2 3"ganise 4eeds2

Within the "ealm of +hat +e Can

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0o %o+n Budgeting

0o1%o+n Budgeting is the te"m gi*en to a

budgeting "ocess based on estimating

the cost of highe" le*el tasks fi"st and

using these estimates to const"ain theestimates fo" lo+e" le*el tasks

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0o %o+n Budgeting

0akes less time P"omotes ue"1le*el commitment

-n*ol*es no multile*el a"ticiation

Lo+e" management bette" unde"stands+hat ue" management e!ects

P"esented do+n the ladde"

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Bottom 6 Budgeting

Sometimes called 7e"o Based Budgeting

Bottom1u budgeting begins +ith

identifying all the constituent tasks that a"e

in*ol*ed in imlementing a "o8ect and+o"king out the "esou"ces and funding

"e9ui"ed by each

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Bottom 6 Budgeting P"o*ides the oo"tunity to c"eate

o"ganisation le*el budgets by "olling u"o8ect budgets

C"eate cent"alised "o8ect le*el budgets

f"om thei" sub1"o8ect budgets :WBS;

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Bottom u budgeting

0akes mo"e time0akes mo"e time

-n*ol*es c"oss1section of the o"ganisation-n*ol*es c"oss1section of the o"ganisation

P"esented u the ladde"P"esented u the ladde"

Seeks a"ticiation at all le*elsSeeks a"ticiation at all le*els /ncou"ages commitment to the lan/ncou"ages commitment to the lan

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-te"ati*e Budgeting

-te"ati*e to "eeat o" do again

A combination of to1do+n and bottom1u

budget building

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0o %o+n . Bottom 6 Coma"ed

Bottom-up Top-down

- Annual - Multi-year

- Time consuming - Delegated authority

- Ownership of proposals is - Creates joint ownershipof

specic proposals

- Reactive - roactive

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Budgeta"y Cont"ol

0he ability to cont"ol anticiated

e!enditu"es fo" you" "o8ect using a

"o8ect cost budget$

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Budgeta"y Cont"ols

Actual 0"ansactions,

a"e "eco"ded "o8ect costs$

/!amles include labou"2 e!ense "eo"t2

usage and miscellaneous costs$

Commitment 0"ansactions,

a"e anticiated "o8ect costs$/!amles include u"chase re/uisitions

and u"chase o"de"s o" cont"act

commitments$

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)eatu"es of an effecti*e budget

&$ Accu"ate fo"ecasting

=$ Based on o"ganisational goals

>$ -nfo"mation is timely and accu"ate

($ )o"med +ith multile*el inut$ Regula" "e*ie+s a"e built1in

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P"oblems +ith budgeting

0he "ocess is too long

0he"e is a lot of game laying

Business decisions change but the budget

does not

Peole in cha"ge of budget a"e held

accountable in a"eas +he"e they ha*e no

"esonsibility

Alying an a"bit"a"y e"centage toprior

e"iod actual

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Analysing @a"iance

Budget de*iation analysis :*a"iance

analysis; "egula"ly coma"es +hat youe!ected o" lanned to ea"n and send

+ith +hat you actually sent and ea"ned$

@a"iation analysis can hel g"eatly +hendetecting ho+ +ell you"e t"acking you"

lans2 ho+ much to accu"ately budget in

the futu"e2 +he"e the"e might be ucoming"oblems in sending$

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/!amle of a *a"iance "eo"tDate: June 30, 2015

Account: Product Development MONTH TO DATE

AO!NT "E#$ AT!A% &!D'ET (A")ANE *

+A%A")E+ 5025 -,000 3,.50 / ,3.5 / 10

T"A(E% 2 1,500 1,200 / 300 / 25

+!PP%)E+ 5320 500 .00 200 2-$5

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Benefits to checking *a"iance

6nde"stand the "eason fo" the diffe"ences

P"ea"e a mo"e accu"ate budget in thefutu"e

/*aluate budget goals

-solate "oblems -dentify +eak a"eas

oti*ate manage"s

Communicate +ith all le*els

)o"ecast

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Resonse to budget +a"nings

&$ )"eee sending

=$ )"eee acti*ity

>$ Put off unnecessa"y# "o8ects acti*ity

($ Re1scheduleDcost you" "o8ect$ %o+nsie you" "o8ect

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T&A*K 0O1 2O"

34ST!*4*#