Budget process

The budget process is the process of creating a plan for the spending of money for a particular time period. It involves analyzing and planning the organization’s spending and revenue sources. The budget process involves the following steps:

• Establishing Goals: The first step of the budget process is to establish the goals of the organization. These goals should be both short-term and long-term, and should include financial and non-financial goals.
• Collecting Data: After setting the goals, the next step is to collect the data necessary to create a budget. This data includes the organization’s current financial position, sources of income, and spending patterns.
• Analyzing Data: The third step of the budget process is to analyze the collected data. This analysis should include the organization’s current financial position, forecasted revenue, and the expected costs of achieving the set goals.
• Developing the Budget: After analyzing the data, the budget should be developed. This should include the expected revenues, the expected expenses, and the expected profit or loss.
• Monitoring and Revising the Budget: The final step of the budget process is to monitor and revise the budget. This includes tracking the actual results and comparing them to the budgeted amounts. If the actual results are different than the budgeted amounts, then the budget should be revised accordingly.

The budget process is an essential component of any organization’s financial planning. By going through these steps, organizations can ensure that their spending and revenue sources are properly aligned with their goals and objectives.

Example of Budget process

The budget process is the process of creating a plan for the spending of money for a particular time period. It involves analyzing and planning an organization’s spending and revenue sources.

When to use Budget process

The budget process should be used when an organization wants to create a plan for the spending of its money. This could include setting short-term and long-term goals, collecting data, analyzing data, developing the budget, and monitoring and revising the budget. It should also be used when an organization wants to ensure that its spending and revenue sources are properly aligned with its goals and objectives.

Types of Budget process

• Incremental Budgeting: Incremental budgeting is the process of budgeting based on the previous year’s budget. This method of budgeting assumes that the budgeted amount is the same as the previous year’s budget, and any changes are made incrementally.
• Zero-Based Budgeting: Zero-based budgeting is the process of budgeting from a clean slate, with no assumptions about the previous year’s budget. This method of budgeting requires the organization to analyze each expense and revenue source and allocate funds accordingly.
• Performance-Based Budgeting: Performance-based budgeting is the process of budgeting based on the expected performance of the organization. This method of budgeting requires the organization to analyze the expected performance of each expense and revenue source, and then allocate funds accordingly.

The budget process is an essential component of any organization’s financial planning. Different types of budgeting can be used depending on the goals and objectives of the organization. Incremental budgeting is the process of budgeting based on the previous year’s budget, zero-based budgeting is the process of budgeting from a clean slate, and performance-based budgeting is the process of budgeting based on the expected performance of the organization. Regardless of the type of budgeting used, the budget process is an important part of any organization’s financial planning.

Steps of Budget process

The budget process involves the following steps:

• Establishing Objectives: The first step of the budget process is to establish the objectives of the organization. This should include both financial and non-financial objectives, which should be measurable and achievable.
• Gathering Data: After setting the objectives, the next step is to collect the data necessary to create a budget. This data includes the organization’s current financial position, sources of income, and spending patterns.
• Analyzing Data: The third step of the budget process is to analyze the collected data. This analysis should include the organization’s current financial position, forecasted revenue, and the expected costs of achieving the set objectives.
• Developing the Budget: After analyzing the data, the budget should be developed. This should include the expected revenues, the expected expenses, and the expected profit or loss.
• Monitoring and Revising the Budget: The final step of the budget process is to monitor and revise the budget. This includes tracking the actual results and comparing them to the budgeted amounts. If the actual results are different than the budgeted amounts, then the budget should be revised accordingly.

The budget process is a cycle of planning, monitoring and revising the budget of an organization. It involves the following steps: establishing goals, collecting data, analyzing data, developing the budget and monitoring and revising the budget. Establishing goals is the first step of the budget process and involves setting short-term and long-term goals for the organization. Collecting data involves gathering the necessary information to create the budget. This includes the organization's current financial position, sources of income, and spending patterns. Analyzing data is the process of examining the collected data to help create the budget. This includes assessing the current financial position, forecasted revenue, and the expected costs of achieving the goals. Developing the budget involves creating the actual budget, which includes expected revenues, expenses, and profits or losses. Finally, monitoring and revising the budget involves tracking the actual results and comparing them to the budgeted amounts. If the actual results are different than the budgeted amounts, then the budget should be revised accordingly. The budget process is vital for organizations to ensure their spending and revenue sources are properly aligned with their goals and objectives.

Advantages of Budget process

• Improved Planning: Budgeting helps an organization plan for the future by helping them identify where their resources should be allocated, and what their spending and revenue goals should be. This helps them make better decisions, which in turn leads to better outcomes.
• Increased Accountability: Budgeting also helps an organization hold themselves accountable for their spending and revenue goals. By having a budget, an organization can more easily track their progress and make necessary changes if they are not meeting their goals.
• Increased Efficiency: Finally, budgeting helps an organization become more efficient in their spending. By allocating their resources properly and tracking their progress, an organization can reduce their costs and increase their revenues.

Limitations of Budget process

The budget process, while essential, does have some limitations. These include difficulty in predicting the future, difficulty in accurately forecasting revenues, and difficulty in controlling costs. Additionally, the budget process can be time consuming, and can often cause delays in decision making.

Other approaches related to Budget process

• Zero Based Budgeting: Zero-based budgeting (ZBB) is an approach to budgeting in which all expenses must be justified for each new period. This means that all expenses must be reviewed and approved each period, regardless of whether they have been approved in the past.
• Activity-Based Budgeting: Activity-based budgeting (ABB) is an approach to budgeting in which all expenses are related to specific activities. This approach allows organizations to better understand how their spending is related to their activities and to make informed decisions about how to allocate their resources.
• Rolling Budget: Rolling budget is an approach to budgeting in which the budget is continuously updated to reflect the most current information. This allows organizations to be more agile and responsive to changes in their environment.

The budget process is an integral part of any organization’s financial planning. There are a variety of approaches that can be used to create and maintain a budget, including Zero-based Budgeting, Activity-based Budgeting, and Rolling Budgeting. Each approach has its advantages and disadvantages, and organizations should consider each carefully before committing to a specific approach.

Budget process — recommended articles

Earned value analysis — Budgetary control — Cost management plan — Capital planning — Accounting period — Future cash flow — Capacity management — Project cash flow — Accuracy of the information

References

• Berner, M., & Smith, S. (2004). The state of the states: A review of state requirements for citizen participation in the local government budget process. State and Local Government Review, 36(2), 140-150.
• Oh, Y., Jeong, S. H., & Shin, H. (2019). A strategy for a sustainable local government: Are participatory governments more efficient, effective, and equitable in the budget process?. Sustainability, 11(19), 5312.
• Kluvers, R., & Pillay, S. (2009). Participation in the budgetary process in local government. Australian Journal of Public Administration, 68(2), 220-230.