Development of Spending Plans

Each business unit/department will create a spending plan or budget which are ultimately brought together to create the final budget plan for the organisation. Bear in mind the overlap with forecasting which you learnt in the previous Learning Unit.

The process usually takes place as follows:

1. Each business unit draws up their own budgets/forecasts of expenditure (employee and non-employee costs).
2. Each business unit also draws up their own budgets/forecasts of capital expenditure.
3. In addition to these, the sales business unit will also produce a sales budget/forecast.
4. The production department will also create product volumes and costings budgets/forecasts.
5. All of these are brought together to form the enterprise budget/forecast.

If your organisation is small, you may not have all these departments, in which case the final budget can be generated without having to consult with other departments.

Some organisations work with rolling budgets as opposed to annual budgets. A rolling budget looks five quarters ahead and is revised every three months. Rolling budgets are often smoother as they take into account re-forecasting that should ideally take place in the course of running a business.

Click here to view a introduction video about budgeting.