Budget planning is the set of rules and guidelines that are followed when preparing a budget that will be implemented by a private company, or also by the Government.
That is, budget planning is a series of processes that are carried out in the preparation of a budget for a later period. This, in the private or public sector.
We must remember at this point the definition of budget. This is, in general terms, an advance projection that estimates the cost of carrying out a project, on which certain objectives have been established.
In this sense, it is important to emphasize that the budget for the project, the investment, the company, or the State, responds to a series of goals that are sought to be achieved. We can refer, for example, to an expected level of sales or an estimated profit from the start-up of a business.
In the case of public works, the objective may be to provide a service to the citizen at an affordable cost.
Aspects to consider in budget planning
Some aspects to take into account in budget planning are the following:
- You can set both quantitative and qualitative objectives.
- Planning can be by areas, that is, each department of the company receives a budget allocation.
- Another alternative is that the budget allocation be by activity or project, regardless of the areas involved.
- The budget can be established in very rigid terms, without the possibility of variations. However, we can also be faced with a variable budget that changes depending on the volume of activity.
- As far as possible, the objectives set should be capable of being measured in the future by means of indicators. This will allow more precise control over the achievement of the objectives set.
- Short-term and long-term goals are set.
- It is essential to be able to accurately estimate income and expenses. Otherwise, the final result could be very different from what was expected.
- Different scenarios can be considered, one conservative, one moderate and one optimistic, for example, to handle different possible outcomes.
Difference Between Planning and Budgeting
We should also note that budget planning is a similar concept to budget management. This, in turn, consists of the administration and allocation of monetary items to specific departments or projects.
In the reviewed references, there is no clear difference between management and budget planning. However, what the very names of the concepts would tell us is that management is broader, that is, it includes planning and other tasks.
As we explained in our management article, this work has several steps: planning, organization, direction and control. In planning, the objectives are set, but it is in the following steps where a strategy is developed and launched, to later verify that what is planned is being fulfilled.
Some examples of budget planning could be:
- The BY company is looking to launch a new product. For this, prepare a budget for the marketing campaign that will advertise the merchandise.
- The Executive Branch is preparing the budget for the public spending planned for next year. Once ready, you will have to present it to the Legislature to achieve its approval.