Budgeting & External Factors

Date: August 8, 2007
Time:11 PM
Place: Kitchen

External factors create an uncertainty in the budgeting process. These factors are often uncontrollable, so this should be taken into consideration when evaluting a manager's performance. When developing a budget, the controllable items should be seperated from the uncontrollables.

Below, I copied the process for including uncertainties in the budgeting process. This is from the book "Essentials of Business Budgeting." Author: Finney, Robert G. , New York AMACOM Books, 1995.


THE ASSUMPTIONS PROCESS

1. Think through the unit's work definition and plans and select subjects for assumptions as explained in the previous section. (There will be only a small number of truly important inherent uncertainties, but these can be crucial.)
2. Make reasonable predictions for assumption values for each subject.
3. Submit these prominently as supplementary information included in the submitted budget forms.
4. In budget presentations and reviews, stress the relationship and influence of your assumptions on your various budget numbers.
5. If your boss wants an assumption changed, do it without argument. However, if challenged, vigorously defend the uncontrollability of your assumption subjects.
6. Throughout the year at performance reviews, stress how variation in values of uncontrollables have affected your costs and outputs.