Now we start the analysis of the budget planning guidelines.
Accounting professionals define the budget as a financial plan
structured to support strategy implementation in a particular period.
The budget is more than estimation.
It includes a whole analysis of strategic directions, priority discussions and
goals to achieve.
So if we have defined the goals to achieve,
then the performance management model has to be in place.
Managers have to care about accountability to company owners.
If the strategic plan doesn't specify that managers have to deliver, then
the instrument will serve as a reference for their contribute is the budget.
One of the first guidelines for
budgeting is the general approach of how to develop it.
For instance, you can develop it in a top-down approach or
you can do it in a bottom-up development.
You can also mix the two methods, typically in most cases,
we see the top-down method, because the bottom-up
approach is more time consuming and it's never too much to remember.
A bottom-up approach would increase the workload for all managers.
And budgeting is not their core job,
despite the fact that it's important to support their core jobs.
As you're going to hear many times in this course,
the budgeting development has many reviews.
If the model of development is top-down,
there will certainly be reviews because, in many cases,
the senior executives may set goals that can not be achieved by the company.
Nothing wrong with this,
since the push is a necessary driver to stimulate managers in their creativity.
Some interesting alternatives may come out from this process.
The business of the company also has influence in the model,
adopted to develop the budget.
A manufacturing company will have a different steps,
configurations compared to a services company or a financial services provider.
A manufacturing company will have a production plan, inventory budget,
direct material budget.
A services company won't have production or inventory budget.
In this course, we'll discuss the budget for a manufacturing company and
this is because physical products have different tangible components and parts.
Imagine these components and parts flowing through the value chain of the company and
this process contributes to the understanding of the budgeting process.
Besides, the budgeting process from a manufacturing company can be adopted to
support a service component budgeting developer.
Admittedly, the same can not be easily done for a financial company.
However, let's not forget that most of the companies are manufacturers or
service providers.
Another budget planning guideline is that it should reflect the [INAUDIBLE]
strategy, considering the next physical exercise of the company.
So the budget exists to support the implementation of problems and
projects within the scope of the strategic guidelines.
Let's just emphasize that not all decisions are made at the strategic level.
Many of them are left to be made by the manager in the front line of the company.
And that's because companies' managers [INAUDIBLE] details
of the operations such as the induce of processes, the technology supplied,
and the business support systems.
The professionals dedicated to this strategy, typically board members or
shareholders' advisors, can not make decisions that which
companies operational infrastructure like the [INAUDIBLE].
There are more planning guidelines for the budgeting process.
But let's resume this video here and discuss them in the next session.