Budgeting Introduction
- 01:28
Understand what budgeting is, how it's done and why it's done
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Glossary
Control Plan of Operations PlanningTranscript
Our first question about budgeting is, what is it? Well, budgeting is a financial or quantitative plan of operations for the forthcoming period IE. How much do we think we're gonna spend next year? Our next question is, how is it done? Well, spending plans are drawn up for the accounting year and usually split into control periods, which could be two six month periods, four quarterly periods of three months, 12 monthly periods, or 13 four week periods. In a 52 week year, there are very handily, 13 four week periods.
Why is it done? Well, budgeting firstly helps us with planning. Planning, how much we're going to spend planning, how much finance we need to get in place to support all of that spending. Work out how many units we need to produce, how many units of material we need to purchase, how many resources we need to set aside, or labor hours, or employees. All of this budgeting helps us plan for the future. The second reason for doing this is control. Without having some kind of target or plan in place, then people don't know what a reasonable cost is. How much should we pay someone for an hour of work? How long should it take me to produce one unit of output? So planning and control are the two core objectives of budgeting.