Preparing and Implementing a Traditional Budget
Projecting Future Income From Past Performance
In many organizations, it's common to base future plans on what has worked well in the past. You may even do this yourself.
For example, you may have developed checklists to carry what you've learned from piece of work to the next, or you may have based a new project on one that was previously successful.
This concept can also be used when preparing budgets. When it's applied formally, this is known as traditional budgeting, because it's a well-established method of forecasting costs and income.
A traditional budget is based on the previous year's figures. However, these figures are updated to include the new year's predicted sales, changed costs, and additional, relevant information that has been gathered since the last budget. In this article, we'll look at traditional budgets in more detail. We'll also outline how to set them up, and how to manage them.
Budgets are used to outline an organization's financial goals for a set period (typically a year). People then use the budget to monitor progress, by comparing actual performance against projected results.
However, budgets have another essential function: they're one of the key ways in which power is devolved within an organization. They give managers the flexibility to run things their way – within reason – provided that they meet their agreed budget.
As such, if you're preparing a budget, it's essential that you have a clear understanding of how you plan to achieve the targets that you've set yourself and your team.
Why Use a Traditional Budget?
When you prepare and manage a traditional budget, you can do the following:...