Setting Up the Budgeting Plan
Provided by Dr. Dalia Ibrahim Mustafa, Faculty of Business, University of Jordan, Content Partner for SME Toolkit
Types of Plans and General Principles
Strategic Plans (Long-Term Plans)
- These are done by the company's top management, and are usually broad, and general. This type of planning is neither detailed nor focused on a specific target, but rather outlays the strategies, objectives and goals of the company by examining both the internal and external factors affecting the company.
Intermediate and Short-Term Plans
- A strategic plan is often broken into intermediate (tactical) plans which span 1 to 5 years. They are specific components of the strategic plan, and are often done by the middle and upper management.
Short-Term or Operational plans
- These are done by the middle and lower levels of management that cover a time span of 1 week to 1 year, and aim to achieve operational goals, and include budgeted amounts. These plans are the primary basis of budgets, except the capital expenditures budget generally, which is related to long-term plans, but should be included in the yearly budgets.
Defining the Relationship between Planning, Budgeting and Performance Evaluation
- Management develops the “plan” which includes both short-term and long-term goals. The plan should consider all external factors and encompass objectives of the company as a whole, including the levels of individual departments.
- This plan would lead to the “budget” in quantitative terms.
- Since budgets provide feedback to the planning process, they are useful tools to be used in the revision process as well.
- The master budget is the document that the management relies upon as its operating plan.
- Actual results are compared to the plan. The budget is a control tool, which is also used in the variances issues.
- This comparison will result in the revision of prior plans and goals or in the formulation of new plans.
- Changed conditions will be used in planning for the next period.
The time frames that are covered by budgeting are different, but the most common period is a year which is later broken down to quarters or even months.
Copyright © 2016 Dr. Dalia Ibrahim Mustafa. All rights reserved.