The most common approach to budgeting is participative as apposed to a dictated approach, otherwise known as top-down budgeting. By definition a budget quantifies future financial plans and budgeting is the process of mapping out how the company resources under the control of the budget manager will be used. A firm grasp of financial concepts and specific organizational knowledge is required to prepare the budget. This preparation can take many weeks or months and requires communication and coordination of activities among different departments or groups within a company. For example, an IT department would need to speak to all of its users, to get a broad picture of what their future IT needs will be.
The budgeting process consist of a number of stages, the first step is to look at the relevant industry and general economy. An IT manager would perhaps be looking for computing trends, such as the migration to Linux from Sun Solaris and what new technological developments are on the horizon. How relevant this information is really depends on the organization's strategy and goals; it maybe that company X is happy to stick with SUN products, but really needs a solution for automating staff time cards.
The key to any budget is the forecast of "activity" that is expected during the budget period (Marshall, 2003). Estimations of fixed and variable costs, forecasts of what resources are needed for development, upgrades and projects are common to all organizations.
A for-profit organization is primarily concerned with developing an accurate sales forecast, which in fact is the most challenging part of the budgeting process since there are so many factors beyond control that can influence the success of a product. Economics and markets trends mentioned in step, one p ...