Importance of Budgeting
Budgeting and the Planning and Control Process
Learning Objectives
By the end of this chapter, you should be able to:
• Describe how the budget is a component of the planning and control process.
• Explain the three components of planningmission, goals, and objectives.
• Describe how performance reports relate to budgets. • List the advantages of budgeting.
• Describe how budgeting is related to strategic planning. • Describe the budget administration process.
INTRODUCTION
Have you ever tried to use a documented personal budget? If you have, how long did you use it? Many people answer yes to the first question, but the answer to the second question is typically: not very long. When I ask why, the answer is that it was not worth the trouble.
How many business and nonprofit organizations use budgets? The answer is an incredible number do. Why? The answer is that the cost of budgeting is worth the resulting benefits.
This chapter presents an overview of budgeting in the planning and control process. Many of the concepts explained in this chapter will be used in subsequent parts of the course.
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Fundamentals of Budgeting for Nonfinancial Managers
PLANNING
Planning is important to an organization for several reasons. It provides a framework for making decisions by establishing goals, objectives, and strategies. It is oriented toward the future and involves an awareness of how today 's decisions will affect tomorrow 's opportunities. Planning is essential for achieving both short- and long-run organizational goals, and successful managers are continuously planning.
Goals
Planning starts, of course, with setting goals and objectives. As you know, goals are desired qualitative and quantitative results. They are broad in nature and few in number, and goals provide a basic direction for the organization 's management. They should be documented in a clear, concise fashion so that they provide
Learning Objectives
By the end of this chapter, you should be able to:
• Describe how the budget is a component of the planning and control process.
• Explain the three components of planningmission, goals, and objectives.
• Describe how performance reports relate to budgets. • List the advantages of budgeting.
• Describe how budgeting is related to strategic planning. • Describe the budget administration process.
INTRODUCTION
Have you ever tried to use a documented personal budget? If you have, how long did you use it? Many people answer yes to the first question, but the answer to the second question is typically: not very long. When I ask why, the answer is that it was not worth the trouble.
How many business and nonprofit organizations use budgets? The answer is an incredible number do. Why? The answer is that the cost of budgeting is worth the resulting benefits.
This chapter presents an overview of budgeting in the planning and control process. Many of the concepts explained in this chapter will be used in subsequent parts of the course.
1
2
Fundamentals of Budgeting for Nonfinancial Managers
PLANNING
Planning is important to an organization for several reasons. It provides a framework for making decisions by establishing goals, objectives, and strategies. It is oriented toward the future and involves an awareness of how today 's decisions will affect tomorrow 's opportunities. Planning is essential for achieving both short- and long-run organizational goals, and successful managers are continuously planning.
Goals
Planning starts, of course, with setting goals and objectives. As you know, goals are desired qualitative and quantitative results. They are broad in nature and few in number, and goals provide a basic direction for the organization 's management. They should be documented in a clear, concise fashion so that they provide