budgeting
Budgeting is for economic entities of business financial planning process that with the publication of a budget ends.
General
Private households , companies and the state with its subdivisions ( public administration , public companies , municipal companies ) come into question as budgeting economic entities . In private homes, the installation can private financial planning are referred to as budgeting, while generally speaking with companies from budgeting, when a short-term, operational business plan , which the business is intended to reflect on the future of the company is situated. Public budgets are colloquially referred to as “budgets” or “budgets”, so that their preparation for the following year ( housekeeping ) represents budgeting. Budget is a "formal goal-oriented plan formulated in terms of value that is given to a decision-making unit for a certain period of time with a certain degree of commitment". Budgeting is accordingly the formulation of this financial plan and its subsequent control. Often, budgeting is also understood as the specific target for certain organizational units .
content
Budgeting is always carried out for the future , i.e. for the coming business or budget year . Budgeting for several years is less common because the longer planning horizon usually reduces forecast reliability. Budgeting is therefore usually a short-term financial planning, the identification of future revenue ( government revenue ), spending ( government spending ) as a liquidity plan , cost and revenue / income under the income statement , balance sheet items or other values included. Budgeting relating to the profit and loss account can be carried out for cost centers in combination with cost types . So z. B. for the cost center “ accounting ” the plan position “ office supplies ”.
The budgeting process in the company is based on the existing strategic company goals, from which budget targets are to be derived.
Traditional budgeting can be (generally) divided into ten individual steps:
- One examines whether there have been any significant changes in the company compared to the previous year.
- Based on the data of the past fiscal year, you create a forecast of budget-relevant factors of the company's situation for the coming periods.
- Based on the information from the 1st and 2nd step, budget targets for the company are created. This can be an adjustment of the budget targets of the previous period, provided that no major changes have occurred.
- The company management proposes an overall budget, which can result in individual budgets for various departments.
- Decentralized planning departments (e.g. controlling departments at different locations) plan the individual budgets. These plans also include cost planning.
- The planning offices pass the budget requests on to the next higher level.
- This authority checks to what extent the budget requests are compatible with given formal objectives.
- The top-down and bottom-up determined ideas, values and data are compared.
- You create an overall report.
- The company management reviews the overall report and approves the overall budget if necessary.
Subsequent to budget implementation, the budget is checked and reported. In general, when analyzing budget deviations, the planned (target values) and the realized result (actual values) are compared. Deviations can be positive (e.g. planned costs are higher than actual) or negative (e.g. planned profits are higher than actual).
After determining the deviation, the aim of the analysis is to determine the cause of this difference. Countermeasures can then be initiated from this analysis.
The actual budgeting has to ensure that individual budget values are challenging but realistically achievable, that the budget is in line with the target and that no budget changes may be made during the budget period. The budget planning takes place - as with forecasts , forecasts or extrapolations - before the fiscal year to be planned begins.
species
A distinction must be made between retrograde and progressive budgeting and the countercurrent method . With retrograde budgeting there is a central creation of the budget, which starts with the company management and is broken down into the respective organizational units ( English top-down ). Conversely, the decentralized progressive budgeting runs from bottom to top ( English bottom-up ). Here the development of partial budgets (especially begins sales plan , sales plan , human resources plan , investment plan , liquidity plan or marketing plan ) in the smallest organizational units together at the top level to a total budget ( aggregated ) are. The countercurrent process combines the two other processes with one another and tries to use their advantages and eliminate weak points .
Procedure
- Traditional budgeting
- Zero-base budgeting
- Overhead Value Analysis
- Better budgeting
- Beyond budgeting
Functions
Budgeting fulfills the following functions for economic entities:
- Coordination function : it should help to support the horizontal and vertical interaction ( coordination ) of individual organizational units.
- Motivation function : The specified budget targets are intended to provide employees with incentives to use the available budget to achieve company targets ( work motivation ).
- Forecast function : Since budgets are future-oriented, the most precise possible representation of the expected future development should control the behavior of employees.
- The control function is intended to ensure that any deviations from the plan are identified and analyzed by means of a target / actual comparison .
- Communication function : The publication of the budget is a vertical flow of information that is used by those responsible for orientation when making decisions .
- Approval function : The approval of a budget allocates certain financial resources to individual organizational units and, as work instructions, is a specification of upper limits (costs) or minimum limits (income) that must be adhered to.
- Planning function : Budgets serve as a planning instrument and the operationalization of strategic goals.
- Rationality assurance : The budget specifications prevent irrational spontaneous decisions because they bind the decision-makers to budgets.
- Allocation function : Budgeting ensures that financial and non-financial resources are distributed among the individual areas.
- Specification function : The budgeting is fulfilled through the budget size for individual areas and the associated goals.
- Initiation function : on the basis of the specified goals and budget, employees are encouraged to act in order to meet the budget requirements.
With a budget restriction , economics describes conditions in mathematical models, according to which the actors should not spend more money than is available to them. It is fulfilled by the approval function.
criticism
The budgeting process in companies has its origins in the state budget system . He was already in the 1920s as a control instrument of budget control ( English budgetary control ) costs and financial flows in large industrial companies such as DuPont and General Motors used. Large companies in particular have started to respond to their growing complexity by decentralizing their budgets.
Classic budgeting is usually associated with an enormous amount of time, which results in a poor cost-benefit ratio ( working hours and personnel capacities are tied up), as the economic conditions in a company often adapt and the classic budgets are no longer time-oriented. In addition, the employees' freedom of action is restricted by the fixed budget, which greatly restricts process improvement within a company. Furthermore, the budgets only show a company financial figures, which does not reflect process quality or the value of the company. In addition, the budgets are formed from the results of the last few years, which can lead to stagnation of the company and the plans are only updated from year to year. This hinders innovation in the company.
In addition, financial planning, budgeting and extrapolation are decoupled from one another and budgeting results often prove to be incorrect in the future.
Individual evidence
- ↑ Péter Horváth, Controlling , 2006, p. 213
- ↑ Jürgen Weber, Utz Schäffer: Introduction to Controlling . 15th edition. Schäffer-Poeschel, Stuttgart 2016, ISBN 978-3-7910-3574-1 , p. 276-278 .
- ↑ Thomas M. Fischer, Klaus Möller, Wolfgang Schultze: Controlling - Basics, Instruments and Development Perspectives . Schäffer-Poeschel, Stuttgart 2012, ISBN 978-3-7910-2896-5 , pp. 438-441 .
- ↑ Sonja Prell-Leopoldseder, Introduction to Budgeting and Integrated Planning , 2011, p. 60
- ↑ Sonja Prell-Leopoldseder, Introduction to Budgeting and Integrated Planning , 2011, pp. 55 ff.
- ↑ Sonja Prell-Leopoldseder, Introduction to Budgeting and Integrated Planning , 2011, p. 52 ff.
- ^ Adolf G. Coenenberg, Thomas M. Fischer, Thomas Günther: Cost accounting and cost analysis . 9th edition. Schäffer-Poeschel, Stuttgart 2016, ISBN 978-3-7910-3612-0 , pp. 915-920 .
- ^ Gerhard O. Mensch, Budgeting , in: Die Betriebswirtschaft (vol. 53), 1993, p. 819
- ↑ The budget control was first described in 1922 by James Oscar McKinsey in his book Budgetary Control .
- ↑ Jürgen Weber / Stefan Linder, Redesign of budgeting with Better and Beyond Budgeting , 2008, p. 18
- ^ Adolf G. Coenenberg, Thomas M. Fischer, Thomas Günther: Cost accounting and cost analysis . 9th edition. Schäffer-Poeschel, Stuttgart 2016, ISBN 978-3-7910-3612-0 , pp. 925-927 .
- ^ Péter Horváth, Ronald Gleich, Mischa Seiter: Controlling . 13th edition. Vahlen, Munich 2015, ISBN 978-3-8006-4954-9 , pp. 130-135 .