Budget Planning Abstract the Following

Budget Planning

Abstract The following pages will focus on providing a general image of the issue of budgeting, from the state's perspective, on the one hand, and from a corporate perspective, on the other hand. The purpose of the essay is mainly to create a parallel between the most important aspects that affect the two types of budget: the federal and the corporate one. In the attempt to clarify the similarities and differences between the federal budget and the corporate one, theoretical research has been the most important tool. The comparison between the two types of budget is intended to help readers to easier understand how budgets are designed, their purpose, and their importance. The approach of the subject is a general one. The reason for using a general approach relies on the fact that the space destined for the essay recommends such a general approach to a matter of larger interest, rather than a more specific issue. Outline As mentioned above, the essay is intended as a parallel between aspects concerning both the federal and the corporate budget. The approach is a general one, in order to cover as many issues as possible, rather than focusing on a smaller number of specific issues. Also, a general approach to the subject is able to provide a clearer image of the similarities and differences between the two types of budgets. 1. Government Budget. This section is intended as an introduction in the most important issues that surround the matter of federal budget. The section brings into discussion the three dimensions of the government budget: the economic, political, and technical one. The section clearly makes the distinction between the federal and the corporate budget that is characterized by the economic dimension only. Another distinction between the two types of budgets noted in this section is represented by the sources of the governmental revenues, on the one hand, and corporate, private revenues, on the other hand. 2. Budget Development Process. This section aims at describing the actual process that leads to the creation of the budget. The subject is also approached in a general manner, given the fact that specific technical information might prove to not be useful for readers. The most important decision makers involved in the budget development process in the case of both the federal and the corporate budget are listed in this section. 3. Budget Principles. This is one of the most important sections in the essay. Its importance is granted by the fact that the entire budgeting process, whether one refers to the federal budget or the corporate one, relies on these principles. The matter is even of greater importance since the most important federal budgeting principles have been expressed by the President. The stated principles also provide a general image on the central administration's preoccupation for what are considered to be the most important public domains: education and health care. The two systems must be reformed and the federal budget must clearly reflect this. Although they concern different aspects, the principles of the federal budget and the corporate one are quite similar. Their similarity is described in this section. 4. Similarities and Differences between the Federal Budget and the Corporate One. As the title clearly states it, this section intends to make a comparison between the two types of budgets, by emphasizing common or distinct matters that characterize them. 5. Types of Budget. This section focuses on providing a description of the most important types of federal and corporate budgets, in order to easier understand the purpose of financial budgeting.

Introduction The activity of planning a budget is considered by many, both theoreticians and practitioners, as the central activity of financial management, whether one refers to private companies' budget or to the state budget. Even the budget planning for individuals, or households represents an important factor for all parties concerned. The importance of budget planning resides in the fact that the budget is mainly a representation of future revenues and expenditures, based upon which the government or the company in case can establish general strategic directions. Companies' financial performance is then analyzed based on the forecasted numbers presented in the budget. Government Budget Government budget and corporate budget present certain similarities, but they are also very different where certain aspects are concerned. In both cases, the budget reflects the forecasted expenses and revenues for a given period of time, establishing strategic directions for saving and spending. One of the differences between the state budget and the corporate one relies on the fact that government's revenues are gathered from taxes. Government's expenses are consisted of consumption and expenditures. Unlike the case of corporate budget that only has an economic dimension, the government budget has an economic, political and technical dimension. The corporate budget's economic dimension consists in the fact that the budget in case is designed so that it sends the least financial effort for the best economic purpose. But the government budget is not necessarily oriented towards reduced consumption or increased savings. The political dimension of the government budget consists in the fact that the budget is under direct political pressure exerted by the parties affected by the budget. These interested parties' intention is to obtain all the possible benefits. The technical dimension is the most objective one, given the fact that it focuses on the actual revenues and expenses that comprise the budget. Budget Development Process Another difference between the corporate and the government budget is represented by the different ways the two types of budget are designed. The budgeting process is different in the two cases, but it is difficult to establish which of the two processes is the most complicated. In the case of the United States, the government budget is proposed by the President to the U.S. Congress. The Congress is further to make recommendations regarding the funding levels that refer to the following fiscal year. After this step, the House and Senate Budget committees must develop budget revolutions that are supposed to establish spending limits. The proposed budget is further analyzed by the Congress. Also, the Congress is entitled to establish certain appropriations bills. However, the number of organizations involved in designing, analyzing and approving the federal budget is much larger. The governmental agencies involved in the budgeting process include: the Government Accountability Office, the Congressional Budget Office, the Office of Management and Budget, and the U.S. Treasury Department. The issue of the decision makers regarding the federal budget is a very sensitive one. Unlike the case of the corporate budget, decision makers involved in the federal budget planning can suffer negative repercussions in case such a situation can be probed (Thompson, 2009). The corporate budget planning begins with reviewing past actions, their impact, effectiveness and efficiency (CIVICUS, 2001). The next step consists in reviewing the company's vision, mission, general strategy and specific objectives. The budget must be aligned with these factors in order to be suitable for the company's situation. After completing this important phase, operational plans must be prepared. One of the most important steps of the budget planning consists in determining the required resources and estimating the costs. Furthermore, the actual budget is designed. The budget variant is then discussed, analyzed and decided upon. After the best budget variant has been agreed upon by all the decision makers, the budget is implemented, and its effects are monitored. In addition to this, revenues and expenditures are adjusted in case the situation requires this. Budget Principles The federal budget is based on a series of principles that differ from those that the corporate budget is based on. The federal budget's principles have been exposed by President Barack Obama. The first principle discussed by the President refers to the country's dependence on foreign oil. This situation is considered to be a dangerous one, it must be reduced, and the U.S. must orient more and more towards renewable energy sources, as the President recommends (Involved Voters, 2009). The second principle refers to the country's educational system. The President has expressed the need of making the educational system a more competitive one. The future of the country relies on the present situation of the educational system. This is the reason for which the educational system must be improved, and this must be reflected by the federal budget. Another principle that the federal budget must rely on refers to the health care system. The health care system must be reformed by reducing costs, ensuring quality, and allowing individuals to choose the preferred doctors and hospitals. Medicare and Medicaid are responsible for consuming a great percentage of the federal budget. Another important principle states that budget deficit must be reduced even more in the future. In addition to this, a matter of higher importance than even the deficit is represented by the expenses structure. In other words, the government spends important amounts of money of services that may not be as useful as considered in the first place. Instead of establishing a certain acceptable level that the budget deficit may reach, which is a general approach to the matters, it would be more useful to analyze all services, their efficiency and the funding they require. Certain specialists in the field have agreed upon the two most important principles that the budget, whether it is a governmental or corporate one, should follow. One of the two principles consists in the fact that the budget should be designed as a tool for planning and monitoring (Andrews, 2007). Similarities between the Federal Budget and the Corporate One As mentioned above, the two types of budgets are very distinct in areas like the development process, budget application, or decision makers involved. However, there are a series of similarities between the two types of budgets that cannot be overlooked. For example, both types of budgets are subjected to modifications, in case certain unpredicted situations emerge, requiring a new adaptation of the budget. It is more difficult to modify the federal budget, given the repercussions this action has and given the fact that federal revenues cannot be modified in accordance with modifications required by the budget. It is more a matter of fund reallocation. Also, in both cases, the budget for one year should be considered as an entirely different tool compared to that of the previous year. This is because the economic, social, and political environments change, they create new conditions and circumstances, which determine the need for a different budget design. Whether we refer to governmental or corporate situations, the budget, once developed, must be consulted daily, or as often as the situation requires it. In case the budget is not intensely monitored, it because a slightly useless tool. One of the most important traits that the two types of budget have in common is represented by the fact that the budget must be a realistic representation of the situation, its opportunities and threats (UCLA, 2009). If the organization in case builds a budget that presents an optimistic variant, even if it may sound better, it would not help any of the parties involved. Types of Budget The most important types of budgets in the case of private operators include: sales budget, production budget, cash flow budget, marketing budget, project budget, revenue budget, and expenditure budget (Bowles, 2009). The sales budget is intended to estimate the company's sales for a given future period of time. It is estimated in both units and dollars, most of the time, in order Based on this budget, the company is able to determine its sales targets. The production budget is characteristic for the companies that are specialized on production. Following the sales budget, the production budget estimates the number of units that the company must produce in order to meet the sales targets. However, the most important feature of this type of budget is represented by the fact that it estimates the cost for each produced unit. The cash flow budget is one of the most important types of budget. It reflects the estimated future cash revenues and expenses (Harvard, 2007). Such a budget type is not designed for medium or long periods of time, given the imminent cash flow fluctuations. The marketing budget obviously is designed in order to forecast expenses used in promoting, advertising, and generally marketing the product or service in case. The project budget only applies in the case of a specific project. Its purpose is to determine expenses with the workforce and material resources. The revenue budget is characteristic for the governmental budget, as it reflects the level of revenues the government is likely to benefit from over one fiscal year. This budget also determines the expenditures covered by the mentioned revenues. The expenditure budget reflects the forecasted units that the company or government is expected to acquire. There are several other types of budget in accordance with their purpose or timeframe, like: business set up budget, capital budgeting, zero based budgeting, partial budgeting, performance based budgeting, incremental budgeting (EconomyWatch, 2009).