The Process of Annual Budget Preparation
Annual budget for an organization is prepared for a year and is a comprehensive plan, a coordinated set of
detailed financial statement of operating plans and schedule. It is the organization’s formal plan of action for the
budgeted period. Annual budget is the best document for understanding the micro economics of the organization
for the forthcoming budgeted period. Departmental budgets are the basis for the organization’s annual budget
since it incorporates all the department’s budgets. It finally takes the shape of projected profit and loss statement
and the balance sheet at the end of the budget period. It incorporates all the operating and the financial
decisions. In the budgeting process, the annual budget provides a single map explaining how the organization
intends to earn profits and positive cash flow for the coming period. It also helps different departments of the
organization to coordinate their activities so that together they can meet the overall goals and objectives of the
organization in the budgeted period. In an organization preparation of an annual budget is a daunting yet
extremely important task. By definition, preparing the budget entails hard choices. These can be made, at a cost,
or avoided, at a far greater cost. It is important that the necessary trade-offs be made explicitly when formulating
the budget. This will permit a smooth implementation of priority programs, and avoid disrupting program
management during budget execution. The annual budget is a comprehensive planning document that
incorporates several other individual budgets. The annual budget is usually classified into two individual budgets
namely the operational budget and the financial budget.
The annual budget formulation process has the following four major dimensions.
To set up of the fiscal targets and level of expenditures compatible with targets. This is the objective of
preparing the macro economic framework.
Formulation of the expenditure policies.
Allocating resources in conformity with both policies and fiscal targets. This is the main objective of the core
processes of budget preparation.
Addressing operational efficiency and performance issues.
Annual budget is the formal operating plan expressed in financial terms. Annual budget helps the
management with respect to the following issues.
Annual budget for an organization is prepared for a year and is a comprehensive plan, a coordinated set of
detailed financial statement of operating plans and schedule. It is the organization’s formal plan of action for the
budgeted period. Annual budget is the best document for understanding the micro economics of the organization
for the forthcoming budgeted period. Departmental budgets are the basis for the organization’s annual budget
since it incorporates all the department’s budgets. It finally takes the shape of projected profit and loss statement
and the balance sheet at the end of the budget period. It incorporates all the operating and the financial
decisions. In the budgeting process, the annual budget provides a single map explaining how the organization
intends to earn profits and positive cash flow for the coming period. It also helps different departments of the
organization to coordinate their activities so that together they can meet the overall goals and objectives of the
organization in the budgeted period. In an organization preparation of an annual budget is a daunting yet
extremely important task. By definition, preparing the budget entails hard choices. These can be made, at a cost,
or avoided, at a far greater cost. It is important that the necessary trade-offs be made explicitly when formulating
the budget. This will permit a smooth implementation of priority programs, and avoid disrupting program
management during budget execution. The annual budget is a comprehensive planning document that
incorporates several other individual budgets. The annual budget is usually classified into two individual budgets
namely the operational budget and the financial budget.
The annual budget formulation process has the following four major dimensions.
To set up of the fiscal targets and level of expenditures compatible with targets. This is the objective of
preparing the macro economic framework.
Formulation of the expenditure policies.
Allocating resources in conformity with both policies and fiscal targets. This is the main objective of the core
processes of budget preparation.
Addressing operational efficiency and performance issues.
Annual budget is the formal operating plan expressed in financial terms. Annual budget helps the
management with respect to the following issues.
