Exhibit 6.1 on pages 178-180 in your textbook presents the steps in the operating budget process (an extensive list of steps as you can see there). Pick any three of these steps that you consider to be most crucial for a successful operating budget, and explain why you consider them to be so important. (What impacts do your steps have on timeliness, effectiveness, and quality of the budget?
(Three steps: General objectives and policies; developing and implementing an operational budge; Environmental statements)
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The three steps of the operating budget process that I consider most crucial for a successful operating budget are:
Environmental statements – by analyzing the organizations current operating environment allows for a better projected outlook for the upcoming budget. While the past does not predict the future trends become apparent that allow the organization to add additional options for the upcoming year to expand certain areas or review areas that are not producing revenue.
General budget meeting – the first meeting in the communication process to determine the upcoming budget is important because it allows the leadership and management to discuss the needs of the organization and determine goals and outlines for deadlines/time frames. This step also keeps the departmental managers involved to ensure the success of their individual area that promotes success for the overall organization as well (giving them a sense of control).
Tentative budge completion – in this step of the budgeting process the organization can review the detailed specifications and resources needed by each department manager on approved projects and have a better understanding of the actual costs. In doing so, these expenses can be compared to the projected revenues and the expenses or capital budgets can be revised before a final decision is made.