Budgeting

Budgeting is the process of expressing the predicted costs and resources for a planned
course of action over a specified time period. Budgets can be drawn up for business units,
departments, products, teams or the entire organization.
Budgeting helps all types of organisation to plan and control their operations, and to
support their main strategies. A budget sets out the benchmark against which performance will be
measured.
In practice
The main purposes of budgeting relate to planning and control, and supporting the
achievement of strategic plans by:
1. Translating the long-term plan into an annual work programme.
2. Co-ordinating the various departments of the organisation to ensure they are working
in harmony. A budget requires managers to consider the relationship between their operations
and those of other departments. Otherwise, managers might make decisions in their own
interests, rather than the company's best interests.
3. Communicating plans to those who will be held accountable. Each department or
individual should understand what role they play in helping the organisation achieve its plans.
Key individuals are held accountable for the outcome of departments or teams, known as
budget centres. A budget centre is: 'A section of an entity for which control may be exercised
through prepared budgets. It is often a responsibility centre where the manager has authority
over, and responsibility for, defined costs and (possibly) revenues. In addition to the allocation of
resources, budgeting also provides the authority for expenditure. It may be used to motivate staff
by including performance against budget in the organisation's remuneration scheme.
Process
The budgeting process comprises:
1. Prioritisation of objectives identified in the planning process.
2. Assessment and quantification of total available resources, both financial and non-
financial
3. Identification and quantification of the inputs and processes required to fulfil the stated
objectives and the associated financial resource required.
4. Assignment of proportion(s) of the total resources necessary to manage inputs to
achieve the stated objectives. Each dedicated proportion of the total resource constitutes a
'budget'.
The budget is fixed once it has been agreed it is not changed during the period. This is
to preserve its value as a fixed reference point. Changing circumstances or new information
which affects the budget can be accommodated by budget flexing, or rolling budgets.
Rolling or continuous budget
A rolling or continuous budget is: 'A budget continuously updated by adding a further
accounting period (month or quarter) when the earliest accounting period has expired. Its use is
particularly beneficial where future costs and/or activities cannot be forecast accurately.
Budget flexing
Budget flexing is defined as: 'Flexing variable costs from original budgeted levels to the
allowances permitted for actual volume achieved while maintaining fixed costs at original
budget levels.
Different types of budget
There are several different types of budget, depending on their purpose, and they fit
together in a cascade.
Master budget. At the top of the cascade is the master budget, a suite of statements with
strong similarity to the published financial accounts. This budget consolidates all subsidiary
budgets and usually comprises the budgeted profit and loss account, balance sheet and cash flow
statement.
 Cash budget. This is a detailed budget of estimated cash inflows and outflows
incorporating both revenue and capital items.
Capital budgeting. This is a process concerned with decision making in respect of
specific investment project choices and the total amount of capital expenditure to commit.
Operating budget. This is the budget of the revenue and expenses expected in a
forthcoming period.
Budgets can include financial indicators such as cash, profit/loss, working capital and
non-financial items such as staff numbers, orders and volumes of output. Progress is monitored
regularly (typically monthly) by comparing actual performance against budget.
In terms of managerial or control issues, budgets may be:
1. 'Top-down' (imposed).
2. 'Bottom-up' (or participative) budgets.
3. 'Parallel' (or negotiated) budgets.
Drawbacks of budgeting
The drawbacks of budgeting have been identified as:
Inflexibility
Budgets are time-consuming and costly to put together.
Budgets constrain responsiveness and flexibility and are often a barrier to change.
Budgets are rarely strategically focused and are often contradictory.
Add little value, especially given the time required to prepare them.
Concentrate on cost reduction and not on value creation.
Strengthen vertical command and control.
Do not reflect the emerging network structures that organisations are adopting.
Encourage 'gaming' and perverse behaviours.
Are developed and updated too infrequently, usually annually.
Are based on unsupported assumptions and guesswork.
Reinforce departmental barriers rather than encourage knowledge sharing.
Make people feel undervalued.
The most common method of preparing budgets is to prepare standalone Excel
spreadsheets. Almost 80% of organisations do this, according to a 2003 survey of business
planning and budgeting practices.
 EU politicians begin inquiry into Volkswagen emissions scandal
BRUSSELS: The European Parliament on Wednesday began a yearlong
investigation into the Volkswagen emissions scandal and whether regulators could
have done more to prevent it.
EU regulation of the car industry has been under scrutiny since Volkswagen
admitted last September it rigged U.S. tests for nitrogen oxide emissions in diesel
vehicles.
In a first closeddoor session, the committee of inquiry elected its chair from
the Socialists and Democrats and four vicepresidents to represent the political
range of the European Parliament.
Some EU sources question how effective the inquiry will be as the risk is it
will degenerate into political pointscoring and the main political group, the centre-
right European People's Party, said it should not be "a witch hunt".
The Green Party said that was not the aim and the committee would make a
real difference if it could expose years of alleged close ties between the car
industry, the European Commission and some politicians.
"In this year, it is crucial that we perform our process in an organised and
transparent way so that the conclusions cannot be denied by European Commission
and national authorities," Dutch Green politician Bas Eickhout said.
"That is the crux. If we do our job poorly, they can just ignore the reports.
That is going to be the biggest challenge."
The Green Party has pushed for change and, together with some centrist
lawmakers, wanted to tear up a compromise deal that allows diesel cars to continue
producing above agreed limits.
In the end, they narrowly failed to get a veto, but setting up the
parliamentary enquiry secured crossparty support.
On Wednesday, the European People's Party said it welcomed the work of
the committee, but would cease to support it if it turned into a political blame
game.
"We will not accept that the committee turns into a detrimental witch hunt on
the European automotive industry, diesel technology or the European
Commission," EPP spokesman Krisjanis Karins of Latvia, said.
The Green Party said it expected the committee to hear from representatives
of all sides, including the industry, the Commission and national authorities.
The European Commission has also asked the industry and national
authorities for information and proposed a radical reform of legislation that would
give the EU executive enforcement powers that until now have been in the hands
of member states that tended not to use them.
 Britain will be weaker outside EU: UK government
LONDON: The UK government today released a study to warn that Britain
would be "weaker" outside the European Union in the event of an exit vote in the
June 23 referendum on the country's membership of the 28nation bloc.
"Britain would be weaker, less safe and worse off outside the EU," the report
said.
However, the camp in favour of " Brexit" branded the study a "dodgy
dossier" which is resorting to fear tactics as the campaign for the referendum gains
momentum in the UK.
There is a growing divide within the UK Cabinet as ministers supporting
"Brexit" have been denied access to information prepared by civil servants relating
to the EU referendum.
"It is important that the civil service maintains impartiality during the EU
referendum," said Priti Patel, the seniormost Indianorigin member of the Cabinet.
UK foreign secretary Philip Hammond at the launch of the study here said:
"Some have said we should focus our attention on the Anglosphere and the
Commonwealth. But the EU already has or is negotiating trade deals with all the
biggest Commonwealth countries. None of our allies wants us to leave the EU not
Australia, not New Zealand, not Canada, not the US."
"In fact, the only country, if the truth is told, that would like us to leave the
EU is Russia. That should probably tell us all we need to know," Hammond said.
The report says a credible blueprint was "completely missing" from leave
campaign proposals.
It claimed all of the alternative models were too risky to consider and
highlighted the fact that Norway and Switzerland, which are not EU members, still
had free movement of people to counter the "Vote Leave" camp's immigration
claims.
Iain Duncan Smith, UK work and pensions secretary and one of the
ministers part of "Vote Leave" camp, criticised the report's approach arguing that it
was misleading.