|A budget is a blueprint for achieving specific goals. Your unit's budget is part of your company's overall strategy. So you need to understand your company's strategy in order to create a useful budget.|
|How can you familiarize yourself with your company's overall strategy? |
If your company does top-down budgeting, senior management sets very specific objectives for such things as net income, profit margins, and expenses. For instance, each department may be told to hold expense increases to no more than 6% above last year's levels. It's left up to you to allocate your budget within the parameters to ensure that the objectives are achieved. For example, suppose Amalgamated Hat Rack decides that it wants to increase overall profitability by 10%. That could mean, among other possibilities, launching a new product line to generate new sales, or cutting overhead by upgrading technology, which would reduce the need for part-time workers.
In addition, if your company does top-down budgeting, make sure to look at the overall plans for sales and marketing, as well as cost and expense plans, as you prepare your budget. The company's sales plan determines, to a large extent, how much money will be available for the budget. The marketing budget will give you an idea of what the company will be emphasizing in the coming year. Further, many companies that emphasize quality insist on reducing expenses every year, no matter how slightly, as a way to improve overall company quality. Thus, most major expenses—a new computer system, a new plant, a new field office—are carefully budgeted years in advance.
In companies that do bottom-up budgeting, managers aren't given specific targets. Instead, they begin by putting together budgets that they feel will best meet the needs and goals of their respective departments. These budgets are then "rolled up" to create an overall company budget, which is then adjusted, with requests for changes being sent back down to the individual departments.
This process can go through multiple iterations. Often it means working closely with other departments that may be competing against yours for limited resources. It's best to be as cooperative as you can with other departments during this process, but that doesn't mean you shouldn't lobby aggressively for your own unit's needs.