In the state, the budget period is a fiscal year. But the time period for which an estimate of the organization’s expenses and income is formed can be both smaller and larger. The terms for which the budget period is set are of great importance for the organization of company management. In addition, this time period as a whole determines the effectiveness of the budgeting process.
Choosing a budget period
At various enterprises, the choice of the budget period is determined by the specifics of the company, the industry to which it belongs, organizational features, a common process management system and other internal and external circumstances.
According to management theory, the main goal of planning is to create such conditions for the company’s activity in which it would remain competitive for a long time. This, in turn, allows you to ensure the strength and stability of the organization. Another main function is the receipt and subsequent processing of information, which allows you to set the right guidelines for senior staff, middle managers, as well as motivate them to implement the established plan and achieve the goals set for the company. These factors determine the existence of several approaches in the process of choosing the budget period. Each of them has its own characteristic features.
Strategic planning
The principles of strategic planning of the enterprise provide an opportunity to establish the objectives of the company. First of all, this concerns the purpose of the organization. The strategic business plan of the enterprise sets the main direction in the choice of financing and production, increasing sales and capturing part of the market. In addition, this document describes the general vector of the organization’s work, which determines the type of activity. In other words, strategic planning predetermines subject-industrial specialization.
Along with this, this kind of planning determines how to achieve your goals. The basis for such a strategy are long-term forecasts. Employees of the planning and economic department, marketers, financiers, specialists in production and technical services take part in their analysis and planning development. A distinctive feature of this plan is the low level of detail. It generally reflects the main parameters of the market and production. For example, the size of the market for the main categories of goods and services, rather than the sale of specific products.
Disadvantages of long-term budgeting
At the same time, it should be noted that the preparation of only long-term development programs, business plans and budgets, in the absence of strict budgeting for a short period, does not create conditions for the effective management of the company. Such plans become irrelevant if the management process is not accompanied by regular actions aimed at monitoring the implementation of tasks.
In addition, it must be borne in mind that the macroeconomic situation tends to change. This is especially sensitive in the long run. In such a situation, those factors that do not depend on the enterprise and its structural divisions come first. The medium-term budget period is what allows the company to avoid the serious negative consequences of macroeconomic changes.
Mid-term budget period
The medium-term planning concept covers the development of measures aimed at implementing the strategy, developing financial policies, creating business plans that indicate the sources for attracting investments. In addition, they determine the vectors of development of the means of production, indicate the requirements for employees, material and financial instruments.
The formation of a detailed production plan based on an assessment of the likely sales volume and in accordance with production capacities, as well as the creation of estimates for the structural units of the enterprise, make up the concept of short-term planning.
Short term budget period
In fact, the organization’s budget for a short period of time is a binding document. In other words, it is a kind of basic law for a company. Responsibility for planning and implementing budgetary provisions is established by organizational and regulatory documents. But as significant deviations from the planned indicators, the emergence of additional costs, and savings must be analyzed and argued. As a rule, the short-term budget period is 1-3 months.
In conclusion, it must be emphasized that the most effective option is to use several budget periods at the same time. In addition, budgets should be interconnected and aimed at implementing current goals and strategic development of the enterprise.