The Budget process can be defined as the formal process by which the different sectors of an enterprise reach an agreement on allocating and availability of resources, define the objectives that each must pursue and analyze the differences between objectives and results, in order both to evaluate the performance of each, and improve decision-making.

The purpose of budgeting is:

• Planning: the operational budget begins with establishing and combining the objectives and identifying the resources;

• Communication: the budgeting process should enable communication on all levels of the organization, and reflect the objectives within each business unit;

• Motivation: spreading knowledge of business goals and guiding those responsible to identify the actions necessary to deliver them;

• Coordination: it is fundamental that the budget is instilled from and coordinated within the company;

• Training: inherently training inspires participation and sharing of the Budget.

The budget is composed of three distinct components, commonly defined as master budget:

• operational budgets, define the positive and negative components of income, and the related financial implications, that result in the development of certain programmes of action
  

• budget of investments, on the one hand, allows quantifying the effort needed to adapt the company structure to implement programmes and, secondly defines the need of financial resources not directly related to management, but that contribute to configure the final structure of the State Assets quote;
  

• summary reports (Cash Budget or Cash Flow forecast, forecast and Loss Account Balance Sheet forecast) combining the estimated revenue & cost and entry & exit, enable reaching a verification summary of the results income, financial and capital consequent action plans and investment.

Discover how Tagetik CPM delivers the Budgeting, Planning & Forecasting process

For further reading download the following white paper:

• "Planning and Budgeting in European Companies: Performance management concepts, solutions and perspectives"

  BARC Institute, Wurzburg, June 2008

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