Budgeting process

According to the principal direction in which the budgets are derived, a distinction can be made between top-down, bottom-up and countercurrent processes. With the top-down method, the subordinate budgets are derived from the higher-level budgets in the course of the budgeting process. In contrast to this, with the bottom-up method, the higher-level budgets result from the summary of the plans of the lowest budgeting level. While in the first method the clear alignment of the budgeting process to the company goals is to be seen as particularly advantageous, the advantages of the second method are the higher detailed knowledge and the improved motivation of the hierarchically lower levels. In the countercurrent process, attempts are made to combine the advantages of both processes and to avoid their disadvantages.
In practice, the countercurrent method with top-down opening is mainly used. This means that the company management specifies the target values for the budgeting process in the form of benchmarks and planning premises and that the budgets are drawn up on the basis of these specifications in the various departments. If the consolidation of the individual budgets shows that the requirements of the company management cannot be achieved due to the decentralized planning, the individual budgets must be revised. Budgeting is therefore a very iterative process.

The prerequisite for decentralized budgeting is the timely availability of the necessary initial information for budget preparation. Since, due to the budget interdependencies, information from other budgets is included in many budgets, simultaneous budgeting is theoretically necessary, but in practice budgeting is usually a successive process due to the complexity involved.

The most important instrument for time coordination is the budgeting calendar. The individual budgeting steps are precisely defined in terms of deadlines and responsibilities. A smooth budgeting process is only possible if the partial plans are completed on time, despite the interlocking of the partial plans.
In the case of strong budget interdependencies, it is advisable to incorporate test centers into the budgeting process in order to reduce the subsequent coordination effort. With regard to the conclusion of the planning process, the form and content of the decision proposal must be determined, according to which the budget is approved by the management.
Der Budgetierungsprozess i.e.S. umfasst die Phasen der Budgetplanung, -erstellung und die Budget control.
Since several people are usually involved in drawing up the budget and the sub-budgets are based on the most varied of expectations and ideas, procedural rules are required that ensure a meaningful summary and mutual coordination of the individual budgets. In addition to the coordination, generally by the controller, the following tasks are carried out in the context of budgeting:

• Development and coordination of the planning calendar taking into account the planning logic.

• Monitoring of the adherence to deadlines during the entire budgeting process (eg with regard to the reporting of planned and actual values).

• Guarantee of a meaningful and uniform form of budgeting and reporting (eg plan sizes, reporting structures, presentation).

• Plausibility check of budget estimates.

• Check for compliance with agreed premises.

• Examination of the compatibility of individual partial budgets.

• Creation of the budget template.

Was the explanation to "Budgeting process"Helpful? Rate now:

More explanations about controlling