Budgeting A budget is a forward financial plan. AIMS OF BUDGETING (if done correctly, these are also the benefits of budgeting):  To establish priorities  To give direction and coordination  To assign responsibility  To motivate staff  To improve efficiency  To assess forecasting ability BUDGETS ARE MORE LIKELY TO BE EFFECTIVE IF:  They are agreed with managers responsible  They are realistic  They are regularly reviewed.

PROBLEMS WITH BUDGETING:  Incorrect allocations (too flexible or too tight).  External factors change  Poor communication  If budgets are unrealistic/imposed/not reviewed they can damage morale The above problems can be overcome via flexible budgeting, but this can reduce effectiveness and lead to inefficiencies if close scrutiny is lost. ZERO BUDGETING: This is when no budget is allocated and departments must justify every item of expenditure.

THE BUDGETING PROCESS: 1.Agree Objectives 2.Collect data [from past and future] 3.Decide on functional budgets 4.Compile master/overall budget 5.Monitor and Review 6.Adjust aims and strategies accordingly BUDGETARY RESPONISBILITIES: Revenue Centres are responsible for generating a budgeted income (e.g. Sales department). Cost Centres must ensure costs remain within a set budget (e.g. the purchasing department). Profit Centres are required to generate revenue & to control costs (e.g. a branch of a supermarket).