There are different methods or types of budgeting but the commonest types are zero-based, activity based, incremental and value proposition.
If you use any of these methods or any other method to improve traditional budget planning, then it must align with the objectives of the budgeting and the goal of the company.
There are 2 main goals for corporate planning and budgeting
- The close connection of the activities and the necessary budgets to the strategic goals of the company
- Dynamic and flexible allocation of resources and budgets through planning
10 Steps to Modern Corporate Budget Planning
Budget planning, like any other planning in the company, must have a direct relationship to the strategic goals of the company.
Corporate budgeting planning is a bit different from personal budget planning or family budget planning.
In corporate budget planning, you can get access to funds quickly and easily than in personal or family financial planning.
Budgets are not specified, but derived from the goals and planned activities (compare zero-based budgeting or activity-based budgeting).
These are the important steps to ensure this goal orientation:
- Set Corporate Goals
The company and top management must set strategic goals. You don’t just set your goals, you should be smart about it.
You should set big but realistic goals, and break it down to objectives and set timelines to achieving them.
This can be represented very well in the form of a balanced scorecard.
- Plan Organizational Unit Goals
The subordinate organizational units must translate these into their strategic department goals.
The company balanced scorecard is broken down into several area balanced scorecards.
The goals make it clear which results should be available by a point in time X.
- Plan Activities and Measures
Those responsible for the budget clarify which activities and measures are best suited to achieve these goals.
These are summarized and described in activity plans. This corresponds to the action plan as provided in the Balanced Scorecard.
- Determine the Necessary Investments and Costs
You determine which costs and investments are incurred for the execution of the activities and which payments are associated with them.
The investments and costs are estimated as best as possible in their probable amount.
- Create a Schedule
You store a schedule of when the activities are carried out, when the costs are incurred and when the payments are made. This means: In the plan, the activities are located quarterly on the timeline.
- Formulate Budget Requirements
From this, you derive the need for financial means or other resources and formulate the budget requirements for the respective quarter and the entire period until the activity can be completed and the goals or results are achieved.
You can deploy the 50 30 20 budget planning strategy, dividing your income into 3 spending categories: needs, wants, and savings or paying off debts.
- Create a Decision Template
For this purpose, a decision template for the top management and the decision-makers is developed.
It explains exactly what a budget is needed for, why it is used correctly, and how high it should be in total. Details are usually not necessary.
- Check Decision Template and Budget Requirements
Top management examines this need and weighs up the effectiveness and cost-effectiveness of the measures as far as possible.
- Release Budget
The decision-makers allocate the budgets to the organizational units through written permission to incur corresponding costs or payments. This is documented in the budget plan.
- Adjust Budgets as Necessary
The budget plans are adjusted as necessary. If additional money and other resources are required during detailed planning, these must be justified.