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A budget is a detailed financial plan which describes the acquisition and use of resources over a specified time period. It details the goals or objectives of an organisation and how it is going to be achieved within a specific period. There are 3 aspects to an effective Budget: The goal/objective, planning, and control (Figure 1).
The purpose of a budget is to document what the goal of an organisation is, what planning methods need to be used in order for the budget to be effective, and what monitoring techniques are used which will assist in achieving the budget outcome.
Figure 1: Budget Process
Goal/Objectives: A combination of short term specific milestones (Objectives) that, once completed, will achieve a long term goal of an organisation (Goal).
Planning: The task that is completed before the Goal of the budget is attempted. It is a detailed plan that outlines what day-to-day activities must be performed in order to achieve Objectives.
Control: Constant monitoring of the plan to determine whether the organisation is meeting its desired Objectives. If it is not, the Goal of the budget needs to be changed or corrective action needs to be taken.
The process of preparing of useful budget is best undertaken within a small workgroup that requires input from the major stakeholders in order to achieve the goal of the budget.
The first task of the workgroup is to identify what goals and objectives the budget should look to achieve. For example:
• What are the objectives of the budget?
• What activities will be involved in achieving these objectives?
• What resources will be needed to perform these activ ...