Budget planning, Control questions and tasks - Enterprise planning

14.3. Budget planning

The budgeting process begins with budget planning.

Budget planning is the process of drawing up, reviewing, approving budgets in whole for the enterprise, its structural units, types of business.

Budget planning is based on two methods: balance sheet and technical and economic calculations (calculation results). For the calculation of budgets for structural units, allocated as centers of financial responsibility, the balance method is based on the basis. In this case, the allocation to a separate planning unit is expedient for the structures that provide a measurable final result (for example, a restaurant or a hairdresser in the hotel complex).

Distinguish budget planning:

1. On the structures of the enterprise management system. Pre-allocated structural units that generate (provide) income and profit in its line of business (financial responsibility centers); structural units that contribute to the formation of final results (their activities indirectly affect the profitability of the enterprise, and they are allocated as cost centers). If practically all types of budgets are developed by the centers of financial responsibility (primarily income and expenses, cash flows), then cost centers are justified based on cost centers, with the establishment of cost limits with reference to the quantity and quality of the work performed.

The differentiation of approaches to budgeting by structural units is caused by the need to increase the motivation of the work of personnel on the final result and the formation of conditions for the effective operation of each unit. At the same time, the system of payment and labor incentive is linked to the results of budget execution.

2. By type of activity (especially it is relevant for new types of goods or services that accompany the main type of goods or services).

With budget planning by types of activities (types of services), it is necessary to include in the calculations all the units in their complex that ensure the production of a particular product or the provision of services. The cost part in this case includes in aggregate the costs of raw materials, materials, used labor, financial, material and technical resources, in the share attributable to this type of activity (services). Calculation by types of activities (services) involves calculating the total planned costs for all their nomenclature and comparison with the basic possible price of the sale of goods, services (a set of services). Comparison of the cost of production (services) with the possible price of its implementation allows you to determine their profitability. In this case, ineffective types of services (products) in the subsequent need to either exclude from the nomenclature, or upgrade, ensure the expected level of profitability.

The inclusion of a new type of service in the complex of services provided by the enterprise, involves the calculation of budgets based on the calculation results for a set of services (the consolidated result using the included new type of service should be accompanied by an increase in the profitability of the package of services - synergy effect). In this case, the additional profit is compared with additional costs and the profitability of additional costs is determined (this value should be higher than the established cost effectiveness, otherwise this type of service is not accepted for implementation).

In terms of types of activities (services), budget planning has a calculated nature for determining inefficient types of services (activities) with the subsequent justification for their modernization and efficiency increase. From some activities, obviously ineffective, the company is recommended to refuse.

3. On investment and innovative projects and activities related to the application of new technologies, technology, organization, management.

Budgeting for projects allows you to determine the level of profitability and attractiveness of innovation, the effectiveness of investments in new technologies, etc. The goal of budgeting for investment projects is to ensure the development of measures for effective return on additional investment at the planning stage.

These three directions of budget planning in the enterprise can be used in a complex way, but one of them can be used, depending on which problem must be solved as a matter of priority.

Two approaches are used in budgeting:

a) direct, or calculated, which is based on the method of technical and economic calculations of operational budgets, accounts receivable and payable, with subsequent determination of financial needs and financial possibilities;

b) indirect, based on the balance of current incomes and costs, start-up costs and external financing (income and expenditure budget, investment budget, sales budget, etc.).

Each budget in the process of its drafting and approval passes several stages to refine and optimize its indicators, ensuring that the goals are achieved with minimal costs. The set of budgets in its final version should reflect the development of the enterprise, its structure and types of business, taking into account the receipt of maximum profitability, provided that liquidity and financial stability are ensured throughout the planning period. In general, the system of budget planning is shown in Fig. 12.

Based on the development and implementation of budgets, it is possible to conduct a comparative analysis of the financial performance of various structural divisions or types of business. In accordance with this, a decision is taken on the levels of financing of various types of business, as well as ongoing monitoring of budget execution and business performance. In this case, the entire planning system is built on the comparison of costs and results in monetary terms for each type of business or structural unit. Therefore the system of budgets allows to estimate in advance the consequences of the implemented strategy for the development of a particular type of business, that is, its financial viability. Based on the development of budgets by business type, you can set resource limits and profitability ratios for certain types of goods or services. Such budgeting provides an opportunity to assess the investment attractiveness of a particular type of business. The creation of a system of limits and standards allows for constant monitoring of the directions and efficiency of the use of financial resources, which increases financial discipline and creates conditions for stimulating more efficient work in structural divisions.

Figure 12. Simplified budget planning for the enterprise

The most effective tool for interfacing budgets is the Mobley matrix. The format of this matrix can be enlarged or disaggregated. For a general representation, the textbook gives an enlarged matrix (Table 26).

Table 26

The Mobley matrix (million rubles)

Balance at the beginning of the period

Adjusting your balance accounts

Income and expense budget

Plan

Traffic

Cash

Tools

End of period balance sheets

ASSETS

Cash assets

38

0

Cash Flow

-12

ASSETS

Cash (38 - 12) = 26

Accounts receivable

280

Turnover

+3000

Collection

-3010

Accounts receivable (280 + 3000 - 3010) = 270

Inventory

510

+ 1680

Sold items

- 2070

Production

+420

Inventories (510 + 1680 -2070 + 420) = 540

Other current assets

14

+5

Prepayment

+2

Other current accounts (14 + 5 + 2) = 21

General

Cost

basic

capital

(274)

Investments

91

Total cost of fixed capital

(274 + 91) = 365

Accumulated Depreciation Charges

(129)

Depreciation

+43

Accumulated Depreciation Charges

(129 + 43) = 172

Book value of fixed capital

145

Capitalization

48

Book value of fixed capital (145 + 48) = 193

Other non-current assets 21

Other investments

+19

Other long-term assets

(21 + 19) = 40

Total value of property

1008

Total value of property

1090

LIABILITIES

Tax deductions

14

Taxes Accrued

58

Paid

taxes

-14

LIABILITIES

Tax deductions

(14 + 58 - 14) = 58

Amount of accounts payable

240

Received Credit

1680

Costs

+680

Payments

-2427

Amount of accounts payable

(240 + 1680 + 680 -2427) = 173

Debt (current)

405

Debt (current)

405

Other Liabilities

0

Other costs

+44

Refunds

-44

Other liabilities (44 - 44) = 0

Authorized capital

35

Issue of your shares

+2

Authorized capital

(35 + 2) = 37

Retained earnings

314

Profit loss

-343

Retained earnings +446

Retained earnings

(314 - 343 + 446) = 417

Total Commitment

1008

Total Commitment

1090

Note: the calculation of the total amount of property (asset balance) does not include the total value of fixed capital and accumulated depreciation (the calculation takes the balance (residual) value of capital).

Thus, the Mobley matrix can be calculated strictly according to the articles of the balance sheet or taking into account their enlargement or disaggregation.

In connection with the fact that setting budgeting at the enterprise is quite a costly exercise, it is necessary to compare the budgeting costs with the effect obtained, which makes it possible to evaluate the effectiveness of this management approach.

Test questions and tasks

1. Define the concept of "intra-company budgeting."

2. What tasks are solved with the help of intra-company budgeting?

3. What does intra-company budgeting include?

4. How is budgeting implemented at the enterprise?

5. What are the types of budgets and how are they interrelated?

6. What mandatory budgets are being developed at the enterprise and what tasks do they solve?

7. Describe the budget regulation and its content.

8. What methods and approaches are used in the development of budgets?

9. Why is it necessary to develop budgets by types of activity (types of business)?

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