BUDGET

FPE 3253

DR ZUL ARIFF ABDUL LATIFF

What are the organizational functions of budgets?

1. Budgets as a planning process

2. Budgets as a priority setting process

3. Budgets as a resource allocation process

4. Budgets as a responsibility allocating process

5. Budgets as an evaluation process

Uses of Budgets

Budgets can be useful To provide overview To help allocate resources To determine leverage points In financial control

Budgets reflect industry type

1. Governmental agencies & non-profits

2. For-profits

3. Startups

For-profit enterprises

1. Two flavors of money: revenue and investment.

2. Budgets do not allocate "money," but allocate revenue projections.

3. Quarterly review of revenue vs. projections, continuous evaluation and problem solving.

4. Performance against the budget determines rewards.

“Flavors of money”

Source and restrictions

One time and recurring

Technology budgeting

1. Startup: Defining the product

Differentiating brand

2. For-profit: Controlling/reducing costs

Analysis of what’s going on

New products

3. Agency & n-p: Improving service

Controlling/reducing costs w/o reducing staff

Planning horizon: motivation

1. Startup: differentiating brand

creating market

2. For-profit: controlling costs and maximizing profit for

shareholders

3. Agency & n-p: Quality of service, asdefined by professionals, notcustomers

Incentives

1. Startup: Valuation of options

2. For-profit: Bonus

Raises

Promotion

3. Agency & n-p: Professional ethics, job security

D. The Role of Accounting

Provide useful information to Owners Managers Potential investors Regulators

What would be in the introductory parts of a financial management course

• Background/Objectives

• Key Financial Accounting Concepts

• The Financial Statements

• Interpretation and Analysis

What Are We Talking About?

What do accountants do? How do they do it? Who cares about what they do and how it’s done?

• Financial Accounting

– Preparation of financial statements

– Audit

– Control

• Managerial (or Cost) Accounting

– Budgets and variances

– Analysis for management decisions

– Cost and profitability assessment

QUESTION

1. What is a budget?

2. Tips for developing budget?