Chapter 10: Budget Management Decisions

How have my managers been performing?

Budgeting involves two separate phases, based on timing: budgeted development comes first, where the financial plan for the organization is created, and is followed by budget management, where a comparison of the budget to actual results is done. This comparison generates variances that must be analyzed and explained. The feedback loop is completed when corrective action is taken to address deviations from the approved plan.

In summary, the budget management cycle involves

On an annual basis, budgets are created for a company's income statement as well as its cash position. There are a number of budget development methodologies used, but the most popular is the incremental approach, where the prior year's actual results form the basis for the current year's financial plan. Other budget development methods include: