Setting an annual budgets.

Introduction

Budgeting is a part of long term planning in companies . if you fail to plan , you plan to fail- I personally subscribe to this philosophy ' says Kevin Platnik , Vice President of planning and analysis of Cadence Design Systems Inc , San Jose (Kroll , Aug 1997

An ideal budgeting should be a system of authorisation , a means of forecasting and planning , a channel of communication and co-ordination , a motivational device , a means of evaluation and control and a source of information for decision making

The academic literature recognises that the conflicts

associated with these multiple functions of budgets cannot easily be resolved (Dugdale 1999

Budgeting Process

The budgeting process involves a set of interlocking budgets which projected financial results usually for a year and can be defined as a quantitative of expression of a plan of action and an aid to co-ordination and implementation of the plan (Dugdale 1999 ) and this is preceded by establishment of corporate mission and objectives , a set of assumptions like limiting factor usually sales , setting the budget for the function constrained by the limiting factor , setting other budgets , co-ordinating with limiting factor , and corporate objectives and synthesising of all budgets to result in a master budget , reviewing the master budget in the light of corporate objectives , accepting of the master budget and if not going back and repeating the process until it becomes acceptable , monitoring actual results against budgeted figures , reporting the variances and as a result revising the master and subsidiary budgets to accommodate inevitable variances ABC Fuel Gas Ltd . is engaged in selling natural gas besides providing natural gas storage and transport services in addition to its profane business . Its revenues The motivation to set up a budgeting system came from its Bankers when the Board and the Management had been already seized of the matter . They were all concerned about cash flow projections and earnings potential of the company . While the board was anxious to improve the Return on Equity (ROE , the management was contemplating to have

Ls segment wise and departmental costs (cost centres ) and cash flow tracking . Its segments are complex in that there are regions , different lines of business (utility , profane merchandise ) and different types of customers in commercial , industrial and residential categories . Out of the options of utilising its existing employees , hiring outside consultants or hiring a full-time budget manager for the purpose , the company hired a full time experienced professional as its budget manager after having consultants to set up the first budget which decision not only spared the existing managers of additional responsibility but also gave an opportunity of independent , fresh perspectives with no biases though there was a disadvantage of the new person not knowing the business fully well . The new manager being a self directed person lost no time in learning the new business and its long-range and operating budget processes Budgeting had to be flexible in the company as demand for its products depended up on the seasonal variations from abnormal winters to...