While budgets are primarily based on past trends i.e. follow Historical Pattern,

environmental changes which have appreciable impact, viz:

• Technology upgrades

• Initiatives by competitors

• Changes in laws/tax laws

have to be suitably accommodated/ ANTICIPATED.

 

Besides,

• Sophisticated financial package for computerized applications can take the drudgery and uncertainty out of budgeting to some extent.

 

• Yet all conjecture about the future is guesswork.

 

• Experience and judgement of managers are very important in partially eliminating the 'guess' part of 'work'.

 

• Once Sales and Production costs have been finalized, budgets can be prepared.

 

The 4 stages of formulation. (see 'Budgetory Formulation') are now gone through by cost centre/unit/segment/departmental/section heads.

 

Basically, it is a play-off between costs, resources, business strategies and profitability goals.

The budgetory exercise, broken down into the smallest individual unit of the organization, is now recompiled by adding up all the separate elements, to form the company budget (with necessary alterations).