The Importance of Budget Planning
Budget planning is the process of preparing a financial plan for a government or private organization. It is important to consider a number of factors when preparing a budget. These factors include the timetable for preparing the budget, Economic assumptions to be used in estimating the costs of stated and agreed (within government) expenditure policies, and Checking the adequacy of the budget.
Common weaknesses in budget planning
Lack of proper budget preparation is a common problem. Several causes may be responsible for the problem, ranging from insufficient program provision to unrealistic expenditure targets. In addition to this, budgets may not be prepared with sufficient attention to the long-term consequences of their decisions. Consequently, they may lead to wasted administrative efforts, inappropriate resource allocations, and expenditure arrears.
Another common problem with budget planning is underfunding. An underfunded budget may leave a company short of cash or unable to implement all the action plans in the budget. This can have a negative impact on future sales. To avoid such a problem, teams must consider historical trends and current needs.
A budget can also be flawed if it does not account for wiggle room. Too strict a budget can leave people feeling constrained, but it must still leave some wiggle room for unexpected situations. Budgets should also account for the amount of money each department needs.
Timeframe for budget preparation
Establishing a timeframe for budget preparation is an essential step in the process. Ideally, the budget will be approved and implemented by January 1st of the fiscal year, so it is important to develop the budget with a fiscal year start date in mind. It is helpful to have a detailed schedule to determine who is responsible for what tasks, and when. A successful budgeting process will align a company’s goals with its past performance and its external environment.
The process is most effective when it starts as early as possible. A timeline gives the budget department time to implement necessary procedures to ensure that resources are allocated in an efficient manner. Implementing procedures for resource prioritization early on can help set discussion points for policymakers. These procedures help to avoid budget preparation delays, which can lead to unintended consequences.
During the budget formulation process, the estimated expenditures for the next fiscal year should be determined. These estimates should be submitted to the EBO before the November 1 deadline. The expenditure requirements should be categorized by programs, program elements, and major objects of expenditure. Moreover, any requested changes in programmatic expenditures should be justified. Proposed capital expenditures should also be justified. In addition, detailed statements of personnel should be included in the budget for each agency.
Economic assumptions to be used in estimating costs of stated and agreed (within government) expenditure policies
When estimating the costs of stated and agreed expenditure policies, economists make assumptions that will help them calculate the costs of government actions. In general, the cost of a stated policy includes both direct and indirect costs. Direct costs are those that a government incurs. Indirect costs include those that the government does not directly spend.
Checking the extent to which the budget is attainable
During budget planning, it is essential to ensure that the government is not overspending or underspending its resources. This is often the result of shortsighted policies that are difficult to sustain over the long term. By implementing procedures to prioritize resources early in the process, the government can ensure that it remains within its allocated funds.
The budget preparation process should be transparent and comprehensive. This will avoid arbitrary spending cuts that are made late in the budget preparation process. It is also essential to include the views of subordinate managers when making the budget. Usually, subordinate managers are more knowledgeable about how to run a specific department and can accurately estimate its costs.