Budgets are a major part of the planning process for the business. Specifically they are a short-term plan to outline what the business wants to achieve by the end of the period. It’s common for a budget to run for twelve months and cover a calendar or financial year. While this creates a clear guide for the managers for the year ahead, the rigid twelve months is a long commitment period. Major events can happen within that time that the budget won’t have accounted for so if the plans deviate significantly this can cause knock-on effects for the remainder of the budget and plan.An alternative to a 12-month budget is to use a rolling quarterly budget. This budget would first only budget for the first 3 months, then the second budget will be made during the first quarter itself, the third made during the second quarter, and so on. The budgets are then made and reviewed so frequently that it can also mean that more topical issues can be addressed, and targets can be reflected for more realistic and known outcomes. The downside is that only the next 3 months will have been budgeted for, and budgets are constantly changing, and this itself can create uncertainty of goals in the long term.The planning process includes the preparation and implementation of the budget but this is not the only bit of planning managers carry out that are affected by the budget. The budget encourages additional planning to meet the goals set out for department and to avoid any hasty decisions based on anticipation of problems. Without a budget, managers have more time to focus on the pressures of day-to-day activities and to act without thinking of the future impact their actions have.
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