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Budgets Part 1

Budgets

DEFINITION AND PURPOSE

Think about…

What is your definition of a budget? Try to write your own definition before you start this section of the module.

Here is one definition: “A budget is a financial plan, usually for a period of a year, related to the organisation’s overall strategic plan.”

Let us unpick this statement.

  • We are only concerned here with financial budgets. It is possible to budget for other things but these often come down to money in the end.
  • A budget is a plan – that is something which someone intends to put into effect. Compare this to a forecast, which is a prediction of what might happen without the idea that any action is going to be taken to make it come about.
  • A budget is often a plan for a period of a year, with sub-periods of a month. Financial plans beyond this tend to be more in the nature of forecasts. However a budget for a particular project may be for a longer period.
  • An annual budget should be seen in the context of the organisation’s longer term strategy. For example, an organisation may have a long-term plan which requires a large capital investment such as a major building project. In this case it may budget for lower expenditure for a number of years in order to build up its reserves to finance the new project.

Think About…

Make a list of the different purposes a budget is used for.