The purpose of this paper is to explore the various stages of the budgeting process and attempt to evaluate their effectiveness. I will further evaluate the level and validity of detailed assumptions used to create budget estimates. I will discuss the role of the budget as an analytic tool and explain how the budget can be used to evaluate organizational performance, eliminate inefficiencies in an organization's performance, and explain the budget's role in the business control cycle. I will further analyze control mechanisms that can be put in place to monitor and evaluate the budget, and describe how budget can be used in the performance accountability and reward process. Finally, I will identify a major business initiative in my organization approved last year as a result of the budget process, and explain how the budget was used in the approval process.
The five stages of the budgeting process are as follows:
1. investment screening and selection
2. capital budget proposal
3. budgeting approval and authorization
4. project tracking and
5. postcompletion audit.
In the investment screening and selection phase, "Projects consistent with corporate strategy are identified by production, marketing and research, and the firm's development management. Once identified, projects are evaulated and screened by estimating how they affect future firm cash flows and hence, the firm's value." (Peterson et al, 2002)
This stage is critical to the company's future success. Selecting and screening of projects will determine how well the company performs in the future. Companies spend much time and effort during this phase to ensure they are selecting projects which will truly drive business growth.
In the capital budget proposal stage, "a capital budget is proposed for projects that survived stage one The budget lists the recommended projects and the amount of investment dollars needed for each. This proposal...