lOMoARcPSD|6536636
CPA Australia - SMA - M3
Summary
Strategic Management Accounting (Macquarie
University)
, lOMoARcPSD|6536636
Module 3:Planning, budgeting and forecasting
Part A: Introduction to plans, budgets and forecasts
Organisations always make decision about sustainability,
which need them decide their market, products or
services and how to allocate resources. When evaluating
alternatives, they also have to consider likely financial
and non-financial effects.
Decisions about actions to pursue and future direction are
set in strategic plan, which normally cover 3+ years
(most 5+). A budget is a means to operationalise strategic
plans, create value and shape organizational future.
Once strategic plan is ready, organisations focus on
short-term decisions that shape daily activities. These are
in operational plan (normally 1 year). Although budgets
are about achieving goals for next one year only, they are
set in strategic plan, and therefore linked with achieving
long-term goals.
As future is unknown, financial results are predicted.
Forecasts in strategic plan are in general, but are in detail
in operational plan. So, a budget is an outcome of
planning process.
Relationship between budgets and strategic planning
Strategic planning: long-term; senior managers plan and
set future direction to meet org9s goals; divided into
long-term and short-term objectives. Strategy means
future direction, helps organisations know current and
future position and how to get there.
1
, lOMoARcPSD|6536636
Operational planning: short-term planning and address
short-term objectives of strategic plan.
Table 3.1 differences between strategic and operational
planning
Strategic Operational
planning planning
Time period Long term, 5yr+ Short term, 1yr
Emphasis Set long term Achieve short
goals; strategy to term goals
achieve them and
plans to
implement.
Details presented Broad Very detail
Budgets assist strategic planning and are most useful
when connected with org9s strategy, from where budgets
begin. They set benchmarks for short term goals, which
can tell if an org is meeting its operational and strategic
plan. If used properly, they can signal managers to revise
plans or org strategy, so budgets are control mechanism
to evaluate manager9s and org9s performance.
Figure 3.2: Relationship between budgets and strategy
Strategic plan (long term)
• Long term • Operational plan (short term)
objectives o Master budget
▪ Operational budget
2
, lOMoARcPSD|6536636
▪ Financial budget
Roles of operational plans, budgets and forecasts
Budget has many types and different time periods. Our
focus is where managers and MA work together to plan
organizational and sub-units9 performance. Most
common budget is for one year and break down to
months supported by quarterly budgets. They are
organisation9s financial roadmap: showing financial
consequences of detailed plan of operating activities.
Budgets are financial plans showing managers9 and
owners9 expectations about financial aspects (sales
prices) and non-financial aspects (quantities of units
sold). MA add value to budgeting process by analysing
and putting non-financial information in budgets.
Budgets can monitor and control organisational
performance when compare what actually happened with
initial expectations.
Master budget: a comprehensive initial plan of what
whole org intends to accomplish in budget period. To
prepare a master budget, managers make decisions about:
• best use of limited financial and non-financial resources
in operating activities
• how to obtain funds to acquire those resources.
3
CPA Australia - SMA - M3
Summary
Strategic Management Accounting (Macquarie
University)
, lOMoARcPSD|6536636
Module 3:Planning, budgeting and forecasting
Part A: Introduction to plans, budgets and forecasts
Organisations always make decision about sustainability,
which need them decide their market, products or
services and how to allocate resources. When evaluating
alternatives, they also have to consider likely financial
and non-financial effects.
Decisions about actions to pursue and future direction are
set in strategic plan, which normally cover 3+ years
(most 5+). A budget is a means to operationalise strategic
plans, create value and shape organizational future.
Once strategic plan is ready, organisations focus on
short-term decisions that shape daily activities. These are
in operational plan (normally 1 year). Although budgets
are about achieving goals for next one year only, they are
set in strategic plan, and therefore linked with achieving
long-term goals.
As future is unknown, financial results are predicted.
Forecasts in strategic plan are in general, but are in detail
in operational plan. So, a budget is an outcome of
planning process.
Relationship between budgets and strategic planning
Strategic planning: long-term; senior managers plan and
set future direction to meet org9s goals; divided into
long-term and short-term objectives. Strategy means
future direction, helps organisations know current and
future position and how to get there.
1
, lOMoARcPSD|6536636
Operational planning: short-term planning and address
short-term objectives of strategic plan.
Table 3.1 differences between strategic and operational
planning
Strategic Operational
planning planning
Time period Long term, 5yr+ Short term, 1yr
Emphasis Set long term Achieve short
goals; strategy to term goals
achieve them and
plans to
implement.
Details presented Broad Very detail
Budgets assist strategic planning and are most useful
when connected with org9s strategy, from where budgets
begin. They set benchmarks for short term goals, which
can tell if an org is meeting its operational and strategic
plan. If used properly, they can signal managers to revise
plans or org strategy, so budgets are control mechanism
to evaluate manager9s and org9s performance.
Figure 3.2: Relationship between budgets and strategy
Strategic plan (long term)
• Long term • Operational plan (short term)
objectives o Master budget
▪ Operational budget
2
, lOMoARcPSD|6536636
▪ Financial budget
Roles of operational plans, budgets and forecasts
Budget has many types and different time periods. Our
focus is where managers and MA work together to plan
organizational and sub-units9 performance. Most
common budget is for one year and break down to
months supported by quarterly budgets. They are
organisation9s financial roadmap: showing financial
consequences of detailed plan of operating activities.
Budgets are financial plans showing managers9 and
owners9 expectations about financial aspects (sales
prices) and non-financial aspects (quantities of units
sold). MA add value to budgeting process by analysing
and putting non-financial information in budgets.
Budgets can monitor and control organisational
performance when compare what actually happened with
initial expectations.
Master budget: a comprehensive initial plan of what
whole org intends to accomplish in budget period. To
prepare a master budget, managers make decisions about:
• best use of limited financial and non-financial resources
in operating activities
• how to obtain funds to acquire those resources.
3
