Sharing some important learnings about "Budgeting" thru Sanofi's Harvard Manage Mentor E-Learning program.

1. BUDGETING
By: Carlo Senica

2. What is Budgeting?
A financial blueprint or action plan.
Translates strategic plans into measurable expenditures
and anticipated returns over a period of time.
A process of creating and fine-tuning budgets.

3. Budgeting Process
1. Set goals
2. Evaluate & choose options
3. Identify budget impacts
4. Coordinate departmental
budgets

4. Types of Budgets
Operating Budgets => includes day-to-day expenses; typically cover a
one-year period.
Capital Budgets => outline planned outlays for investments in plant,
equipment, and product development; covers three, five, or ten years.
Cash Budgets => plot the expected cash balances the organization will
experience during the forecast period, based on the information from
operating and capital budget. these are being prepared by finance group
to ensure the company has sufficient liquidity.
** There are other different types of budget for different purposes.

5. Traditional Budgeting &
Alternate Approches
Budget Parameter Approach Description
Time Period of the
Budget
Fixed Budget (traditional)
Budget period is a specific time period, coincide with
company’s fiscal year.
Rolling Budget (alternate)
Budget is continuously updated so that time frame remains
stable.
Forecast Values
Static Budget (traditional)
Presents one forecast for a given time period and does not
changed during the life of the budget.
Flexible Budget (alternate)
Budgeted revenues and cost are adjusted during the budget
period according to pre-determined variances between budget
and actual output.
Forecasting
Process
Incremental Budgeting
(traditional)
Previous period’s budget, actual results, and future
expectations are used in determining the budget.
Zero-Based Budgeting
(alternate)
Budgeting process begins from ground up, as though budget
was being prepared for the first time.
Setting Goals
Top-Down (traditional)
Senior management sets budget goals and imposes to the rest
of the organization.
Participatory (alternate)
Those responsible for achieving the budget goals are included
in setting those goals.

6. Kaizen Budgeting
Kaizen budgeting is a type of
budgeting process in which
cost reductions are built into
the budget on an incremental
basis so that continuous effort
are made to reduce cost over a
given period of time.

7. Fixed and Variable Costs
Fixed Costs
Are costs that remains
constant within a wide
range of production or
sales volume.
E.g.
• Rent
• Equipment lease
• Indirect labor
• Depreciation
• Administrative cost
Variable Costs
Are costs that change in
direct proportion to
changes in activity.
E.g.
• Raw materials
• Packaging
• Direct labor
• Sales commissions
• Income taxes

8. Variance
Variance is the difference between
budgeted result. vs actual results.
It can be favorable, if the results
are better than expected.
It can also be unfavorable, if the
results are worse than expected.
Unfavorable variance requires
corrective action so that future
results will be closer to budget.