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Lecture 8

SMG AC 222 Lecture 8: AC Notes Chapter 8

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Boston University
SMG AC 222
Greg Sabin

Chapter 8: Budgeting Budgeting A detailed plan for the future expressed in formal quantitative terms Advantages of Budgeting o Communicate management plans o Force managers to think and plan for the future o Allocates resources to be used most effectively o Uncovers potential bottlenecks o Coordinates the activities of an organization by integrating plans of various sectors o Serves as benchmarks for evaluating subsequent performance The Budgeting Process: 1. Planning 2. Allocation of Resources 3. Communication a. Long Range Perspective 4. CoordinationIntegration 5. Control Benchmarking Planning vs. Control o Planning: involves developing objectives and preparing various budgets to achieve those objectives o Control: involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained and that all parts of the organization are working together toward that goal. Ensures plan is being properly executed or modified as circumstances change. Top Down: management dictates, lower management follows Bottom Up: managers at all levels prepare budgets based on company guidelines o A selfimposed or participative budget process 1
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