CHAPTER 10

– Using Budgets for Planning

and Coordination
After completing this chapter, you will be able to:
1. Explain the role of budgets and budgeting in organizations.
2. Demonstrate the importance of each element of the budgeting
process.
3. Explain the different types of operating budgets and financial
budgets and the relationships among them.
4. Describe the way organizations use and interpret budgets.
5. Develop and use what-if and sensitivity analyses—budgeting
tools used by budget planners.
6. Identify the role of budgets in service organizations and not-for profit organizations.
7. Understand the criticisms leveled against traditional budgeting
and the “beyond budgeting” approach.
*DETERMINING THE LEVELS OF
CAPACITY-RELATED
AND FLEXIBLE RESOURCES
*THE BUDGETING PROCESS
– The Role of Budgets and Budgeting
What is Budget?
Two Major Types of Budgets:
1. Operating Budgets
2. Financial Budgets
Operating Budgets
-typically consist of the following six operating plans :
1. The sales plan identifies the planned level of sales for each product.
2. The capital spending plan specifies the long-term capital investments, such
as buildings and equipment, that must be made to meet activity level objectives.
3. The production plan schedules required production.
4. The materials purchasing plan schedules required purchasing activities.
5. The labor hiring and training plan specifies the number of people the
organization must hire or release to achieve its activity level objectives and,
based on those numbers, the needed hiring, training, and counseling out
policies requirements.
6. The administrative and discretionary spending plan includes administration, staffing, research and
development, and advertising.
Financial Budgets

Planners use the statement of projected cash flows in two ways:

1. To plan when excess cash will be generated so that it can be used to make short-term
investments rather than simply holding cash during the short term.

2. To plan how to meet any cash shortages.

*THE BUDGETING PROCESS

– The Role of Budgets and Budgeting

What is Budgeting?
*THE BUDGETING PROCESS
–The Elements of Budgeting

1. Flexible resources that create variable costs

2. Intermediate-term capacity resources that create fixed
costs
3. Resources that, in the intermediate run and long run,
enhance the potential
of the organization’s strategy
4. Long-term capacity resources that create fixed costs
*THE BUDGETING PROCESS

-Behavioral Considerations in Budgeting

* WHAT-IF ANALYSIS

- Sensitivity Analysis
* THE ROLE OF BUDGETING IN
SERVICE
AND NOT-FOR-PROFIT
ORGANIZATIONS

appropriations
* PERIODIC AND CONTINUOUS
BUDGETING
* CONTROLLING DISCRETIONARY
EXPENDITURES
1. Incremental Budgeting
2. Zero-Based Budgeting
3. Project Funding
* MANAGING THE BUDGETING PROCESS

Who should manage and oversee the budgeting process?

– Criticisms of the Traditional Budgeting

Model and the “Beyond Budgeting”
Approach
 THANK
YOU
FOR
LISTENING…