Budgeting

Based upon the scope of the project, this task will produce a preliminary project cost estimate showing cumulative costs over the life of the project. As the project progresses, the actual project costs will be tracked and compared to these preliminary estimates. Changes to areas such as scope, increased resource costs, demographics, legal implications, etc. may cause increased project costs.

The budget takes then following forms of presentation:

  • Master budget-A master budget is a comprehensive projection of how management expects to conduct all aspects of business over the budget period, usually a fiscal year.
  • Operating budget-The operational budget covers revenues and expenses surrounding the day-to-day core business of a company. Revenues represent sales of products and services; expenses define the costs of goods sold as well as overhead and administrative costs directly related to producing goods and services.
  • Financial budget-A financial budget outlines how a business receives and spends money on a corporate scale, including revenues from core business plus income and costs from capital expenditures.
  • Cash budget-A cash flow budget examines the inflows and outflows of cash in a business on a day-to-day basis.
  • Static budget-A static budget contains elements where expenditures remain unchanged with variations to sales levels.
  • Flexible budget-A flexible budget model allows you to enter different sales levels in the model, which will then adjust planned expense levels to match the sales levels that have been entered.
  • Capital expenditure budget-
  • Rolling Budget-A rolling budget requires that a new budget period be added as soon as the most recent period has been completed.

There are several types of budgeting models available:

  • Incremental budgeting– The incremental approach to budgeting combines the costs identified from the previous accounting period with percentage additions. These percentage additions are utilised to cover two key areas which include cost increases as a result of inflation or higher purchases costs and predictions associated with increases in costs and income as a result of business volume predictions.
  • Zero Based Budgeting– A zero-base budget involves determining what outcomes management wants, and developing a package of expenditures that will support each outcome. By combining the various outcome-expenditure packages, a budget is derived that should result in a specific set of outcomes for the entire business.

 Flexed budgeting-A flexible budget model allows you to enter different sales levels in the model, which will then adjust planned expense levels to match the sales levels that have been entered. Hence, it is a budget that adjusts or flexes for changes in the volume of activity.

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