Budget Process Paper

The purpose of my paper is to discuss the budget process, “make” or “buy” decisions, and nonfinancial performance measures. I will explain what they do and why they are used. They each have a distinct importance and are important for any business.

A basic definition of a budget process is “to provide a budget figure for each item” (Schmidt, 2017). As the year goes on, the company will add income and expenses to this budget and then compare them with the original budget that was made (Schmidt, 2017). A good article I found explains how making a good budget process in 7 steps. These steps are “write it down”, “decide who should be involved and when”, “establish an annualized timeline”, “list specific tasks with specific responsibility assignments”,

The first step is as simple as it sounds. Every time there is new information write it down. That way it is there to refer to so nothing is forgotten or left out. Decidind who should be involved and when is very important. The company will want to put successful and trustworthy people in charge of this budget. The ‘when’ is crucial because too many or too few people can cause havoc to the completion of the budget. Establishing a timeline will help make sure the budget is done on time. If there is no timeline, then the employees could slack on the job and just keep putting it off since there is no stated due date. Making sure they stick to this timeline is also important because the company will want this budget at a specific time and if it is not done then they cannot proceed with their next steps in the budget. Listing the tasks and responsibilities will ensure that every employee knows exactly what they are doing. This will make sure every job is covered. Making sure everything is in sync with each other will make sure that everything will tie together

There are a couple different ways to find this. One is taking the actual spending and subtracting the budget spending. The other way is the opposite, taking the budget spending and subtracting the actual spending. You would get a different number, but both are still correct as long as everyone in the company is using the same formula (Schmidt, 2017). A variance is classified as favorable or unfavorable. “A favorable variance is one where the revenue comes in higher than budgeted or expenses are lower than predicted” (Staff, 2010). This is good because the company ends up with more money than they thought they would. An unfavorable variance “occurs when revenue falls short of the budgeted amount or expenses are higher than predicted” (Staff, 2010). This is not good because the company ended up spending more than they were expecting. Sometimes this does happen so it does not always mean the company is going under, but they need to figure out what to change so it doesn’t happen