Управленческий учет на предприятии

Auxiliary budgets

Budgets of taxes, plan of capital (initial) expenditure, credit plan, etc.

Are necessary for more exact definition of target indicators and standards of financial planning, more exact accounting of features of the local (regional) taxation. The set of special budgets, as well as operational, can be defined independently by directors or firms depending on specifics of economic activity

Additional (special) budgets

Budgets of distribution of profit, budgets of separate projects and enterprise or firm programs depending on specifics of economic activity

Are necessary for more exact definition of target indicators and standards of financial planning, more exact accounting of features of the local taxation. The set of special budgets, as well as operational, can be defined by heads independently

Static budget

The budget of the organization calculated on a concrete level of business. Income and expenses are planned proceeding from one level of realization. All budgets entering into the general budget, are static

When comparing the static budget with actually reached results real level of activity of the organization isn't considered, i.e. all actual results are compared with predicted regardless of the reached volume of realization

Flexible budget

The budget which is formed not for a concrete level of business, and for its certain range, i.e. is provided some alternative options of volume of realization. For each possible level of realization the corresponding sum of expenses here is defined

The flexible budget considers change of expenses depending on change of level of realization, it represents dynamic base for comparison of the reached results with the planned indicators.

As the main conditions of ensuring reliability of system of budgeting in foreign firms are considered: decrease in costs for production; production improvement of quality; expansion of consumer properties of production because only in this case it is possible to survive in the conditions of the rigid competition. Therefore for development of formats of the main budgets and definition of a set of operational budgets first of all it is necessary to deal with classification of expenses. Different types of expenses are normalized and planned variously (tab. 7). As a whole all types of expenses can be divided into two main categories: constant (conditional and constants) and variable (conditional and variables).

Table 11.7 - Classification of budgets

Types of expenses	Characteristic of expenses
Constant (conditional and constant) expenses	Expenses which remain rather invariable during the budgetary period, irrespective of change of sales volumes (for example, management expenses, depreciation). Actually these expenses constants in a literal sense aren't. They increase together with increase in scales of economic activity by slower rates, than growth of sales volumes, or grow skachkoobrazno. Therefore them also call conditional and constants
Variable (conditional and variable) expenses	Expenses which change in a direct proportion according to increase or reduction of a total turnover (sales proceeds). They are directly connected with operations of the enterprise for purchase and production delivery to consumers (the cost of the acquired goods, raw materials, accessories, the electric power, etc.). Conditional and variables them call because directly proportional dependence on sales volume actually exists only for the time being or during a certain period. The share of these expenses during any period can change (suppliers will raise the prices, rate of inflation of selling prices can not coincide with rate of inflation of these expenses, etc.). And it will mean that since this period variable expenses though will change, as before, in direct ratio to sales volume, but at other level (with other specific weight)
Direct costs	Expenses which directly and completely belong on prime cost of this production. They are directly connected with economic activity and form product cost (cost bought raw materials, materials, accessories, expenses on a salary on their processing and on production service)
Overhead costs	The expenses indirectly connected with production of this product, business or economic activity of firm, were a condition of its existence as the organizations. Indirect expenses are intended for the various purposes, they can't be carried directly on the cost of a separate product, the contract, the client (for example, advertizing, administrative expenses, communication expenses)
Expense semivariables	Have lines both constant, and variable expenses, i.e. constants, but not in direct ratio, as variables change depending on commodity turnover by higher rates, than. They are reflected usually as a part of overhead costs (some business expenses, for example expenses on advertizing)

The main criterion of distribution of expenses on the main categories is their economic contents. In budgeting it is important to consider (to plan, normalize, supervise) the most important articles of expenses for concrete business. However this task becomes complicated that for each economic subject even the same branch or the region the most different resources can act as the critical. What resources (types of expenses or expenses) have to be allocated in the budget of the income and expenses as separate articles for what operational budgets have to be formed - all this entirely depends on the decision of heads of firm. As the instrument of management of expenses and financial results budgeting has the advantages (tab. 11.8).

Table 11.8 - Main advantages of budgeting as instrument of management of financial results

№	Advantages of budgeting
1	Unlike financial statements, a form of budgets aren't standardized. Their structure depends on object of planning, the size of the organization and degree of qualification of developers
2	Budgets can be developed on an annual basis (with breakdown on months) and on the basis of continuous planning (within 1 quarter the estimate for the 2nd quarter is revised and the estimate for the 1st quarter of the next year is formed, the budget all the time is projected for a year forward)
3	Purpose of budgeting in the company is in the most general view that is a basis of planning and adoption of administrative decisions in the company; estimates of all aspects of a financial solvency of the company; strengthenings of financial discipline and submission of interests of separate structural divisions to interests of the company as a whole and to owners of its capital
4	Budgets have to give the chance to heads to the company to carry out the comparative analysis of financial overall performance of various structural divisions, to define the spheres of economic activity most preferable to further development, the direction of restructuring of activity of the company (folding of one and development of other types of business), etc.
5	Budgets are a basis for decision-making on levels of financing of various businesses from internal (at the expense of profit reinvestment) and external (the credits, investments) sources. Budgets are urged to provide continuous control of a financial condition of the company, to supply her heads with all necessary information, allowing to judge correctness of the decisions made by heads of structural units, to develop actions for expeditious and strategic correction of their activity
6	In the conditions of the market budgeting becomes a planning basis - the most important function of management. All system of intra firm planning has to be under construction on the basis of budgeting, i.e. all expenses and results have to have strictly financial, it is better - monetary value
7	If in itself planning of business is necessary accurately to represent where when as for whom the enterprise or firm will make and sell production or to render services to understand, what resources and in what volume for this purpose will be necessary, budgeting as a planning basis - this most exact expression of all planned indicators and resources in financial terms
8	One of the main functions of budgeting is forecasting (a financial condition, resources, the income and expenses). It budgeting and is valuable to adoption of administrative decisions

Any financial analysis, in details developed tools of financial management are applicable only when there are necessary basic data, i.e. data about expected, future. Definition of any measures for increase of competitiveness requires formation of system of coordinates in which it will be possible to trace occurring changes. Budgeting helps to set limits of expenses of resources and standards of profitability or efficiency by separate types of goods and services, types of business and structural divisions of the enterprise or the firm which excess has to be the cause to understand a situation on a concrete site and to define appropriate ways of the decision. All indicators of quality and labor productivity, monitoring of processes of their increase are anyway connected with system of budgets. In this plan intra firm commercial budgeting has the appointment (tab. 11. 9).

Table 11.9 - Purpose of intra firm commercial budgeting

№	Purpose of budgeting
1	Development of the system of coordinates for business, bases of basic data for the financial analysis and financial management; transfer of system of planning from natural and physical units of measure on financial performance; increase of financial validity of made administrative decisions at all levels of management
2	Growth of efficiency of use available the company and its separate structural divisions of resources, assets (material and non-material) and responsibility of heads of various level of management for the resources provided in their order and assets (for excess of limits of commodity stocks, for unpaid amount of the commodity credits, etc.)
3	Opportunity creation for an assessment of investment appeal of separate businesses (spheres of economic activity) which realizes or in which the enterprise or firm is going to be engaged in the future
4	Increase of validity of allocation financial (first of all investments and the credits) and non-financial resources (the commodity credits) in the separate directions of economic activity and types of business of the company; more exact definition of the directions of investment policy, directions of restructuring of the enterprise
5	Company transformation in «financially transparent», clear financially for those who invested the money in this business
6	Strengthening of financial discipline and combination of stimulation of more effective work of structural divisions in interests of all organization
7	Carrying out continuous monitoring of financial efficiency of separate types of economic activity and structural divisions
8	Control of change of a financial situation in the company; increase of financial stability and improvement of a financial condition of the company as a whole, separate structural divisions and types of business
9	Strengthening of financial discipline at the enterprise, first of all increases of responsibility of heads of various level of management for the financial results reached by structural divisions headed by them

In the conditions of deficiency of investment resources it isn't less important to define where it is necessary to invest money first of all. Budgeting helps to choose the most perspective spheres of application of investments. Still the so-called «boiler» principle of the accounting of expenses acts on the majority of our enterprises. For lack of budgeting it is impossible to divide highly profitable, low-profitable and unprofitable types of businesses, and then to solve what of low-profitable types of business are potentially perspective. Besides, budgeting allows to make the enterprise or firm «transparent», and consequently, more attractive to investors. It allows to define idle, inefficient assets which need to be sold or which need to be used more effectively. Among such assets not always there is only this way called social sphere. Many productions, technologies, the equipment, buildings and constructions without which economic activity in the past was inconceivable, act today as the main factor of noncompetitiveness, for example tool shops of the majority of engineering plants. Therefore budgeting in the country has to become a basis of intelligent restructuring of the enterprises and optimization of structure of assets for the purpose of improvement of end financial results of their activity. Budgeting - one of the main instruments of management of the company. It also is actively used long ago by the companies as technology of financial planning. However the few companies consider budgeting as the real instrument of management of efficiency of business and achievement of strategic objectives and tasks. The most «advanced» enterprises already successfully apply budgeting procedure to planning of the activity. However the practicians having experience of budgeting, have the questions demanding explanations. What to speak about those domestic companies which just now begin introduction of the budgetary processes. At the heart of the concept of strategically focused budgeting the Balanced System of Indicators - the PROGRAM STATUS WORD (BSC - Balanced ScoreCard), developed by R. Kaplan and D. Norton lies. According to the strategic development plan the company develops strategic maps which reflect its purposes in four projections: «Finance», «Clients», «Business processes», «Personnel». For each projection key factors of success and their indicators - key indicators of efficiency of KPE (KPI - Key Performance Indicator) are defined. «Finance» strategy of the company is presented to projections or strategy of growth of the income, or strategy of decrease in expenses. As key indicators of efficiency such indicators, as a market share, profitability of business, a free cash flow, etc. act. Achievement of the specified indicators characterizes success of realization of strategy of the company. For calculation of KPE form the budgetary indicators - sales volume, direct and overhead costs under articles, etc. The budgetary indicators of divisions are a component of the budgetary indicators of the company. Performance of the budgetary indicators has to find the reflection in system of motivation which is a link between the purposes of the company and the personnel purposes. The company which wants to succeed in competitive fight, has to have a plan of strategic development. The successful companies create such plan not on the basis of statistical data and their projection to the future, and being based on vision of what has to become the company through certain time. And only after that they decide that it is necessary to make today to appear in the planned point tomorrow. In the course of achievement of goals deviations from the set route therefore on each «turn» the enterprise should count various options of the further actions are possible. The tool for such calculations also is budgeting. In the numerous textbooks devoted to this subject, it is possible to find various definitions of the concepts «budget» and «budgeting». Within this article the author suggests to use the following terminology. The budget is a plan for a certain period in the quantitative (usually monetary) indicators, made for the purpose of effective achievement of strategic reference points. Budgeting is a continuous procedure of drawing up and performance of budgets. Let's consider the basic principles on which it is necessary to turn attention.

As any procedure, budgeting it has to be carried out by in advance approved rules. Therefore, first of all it is necessary to develop and approve uniform rules on the basis of which the budgeting system will be under construction: methodology, registration of tabular forms, financial structure etc. It is necessary to achieve that these rules earned. And here an important role is played by «a human factor». Quite often managers «give a hostile reception» to statement of budgeting. One perceive it simply as additional work which to them try to impose, others are afraid that budgeting will expose shortcomings of work of their divisions, the third in general can not understand that from them it is required. To force managers to execute the budgetary procedures, it is necessary to use notorious «an administrative resource». The budgeting regulations, the budget, motivation system - all this need to be approved as intra firm orders for which non-performance of employees it is necessary to punish. Thus, the second component of budgeting are organizational procedures. The third key to success - automation of all process of budgeting. At the big enterprises the volume of information is huge, but whatever considerable it was, it is necessary to process it in time. In modern business yesterday's data are necessary to nobody. The analysis of today's indicators and the forecast for tomorrow, the day after tomorrow, for a month forward etc. is necessary. Automation of budgeting is first of all planning automation. In fact, it is automation of those procedures which are painted in regulations on budgeting.

Final budgetary forms.

All procedure of budgeting has to be organized so that at the last stage the management received three main budgetary forms: budget of the income and expenses; cash flow budget; - expected balance. Some enterprises consider sufficient drawing up only one budget: income and expenses or cash flow. However for effective planning of activity of the company at the exit it is expedient to receive all three budgetary forms. Economic efficiency of the enterprise is defined by the budget of the income and expenses, in the cash flow budget directly plan financial streams, and the expected balance reflects the economic potential and a financial condition of the enterprise. It is unlikely finance directors need to explain that in the absence of at least one of three budgets the picture of planning will be incomplete. All total forms are filled on the basis of operational budgets (the budget of sales, the production budget, etc.) . The general scheme of formation of total budgets on the basis of operational can be found in any textbook on budgeting or management accounting therefore we won't provide it within this article. However in one of the following articles we will in detail investigate process of formation of all budgets on the example of the Russian holding. It should be noted that after drawing up the budget of the income and expenses, the budget of cash flow and expected balance work on planning doesn't come to an end. First, the obtained data are initial for the administrative analysis, for example for calculation of coefficients. And secondly, the stage of correction, coordination, solutions of problem questions begins. All process of budgeting comes to the second circle, and as a result one part of quantitative information passes to category «obligatory to execution», and another - to category of the next specified plans.

Efficiency of budgeting - in following to the principles.

The principles of effective budgeting are based on common sense and are quite simple. For comparison and the analysis of these different periods process of budgeting has to be constant and continuous. The periods have to be identical and are approved in advance: week, decade, month, quarter, year. Let's consider the basic rules, to observe which any company which is engaged in budgeting has to.

Principle of «budget sliding».

The continuity of budgeting is expressed in so-called «sliding». There is a strategic period of the planning, for example five years. For this period the so-called budget of development which shouldn't be confused to the business plan is formed. In the business plan have to contain not only quantitative information, but also idea of business, market researches, the plan of the organization of production etc. In principle, the financial part of the business plan also represents the development budget.

The five-year strategic period of planning includes one more period of four quarters. And such period of planning is maintained always: after the first quarter to the fourth one more increases and again the budget for four quarters is formed. It also is the principle of «sliding». For what it is necessary?

First, using the «sliding» budget, the enterprise can regularly consider external changes (for example, inflation, demand for production, a situation in the market), changes of the purposes, and also to correct plans depending on already reached results. As a result forecasts of the income and expenses become more exact, than at static budgeting. In the conditions of regular planning employees on places get used to qualifying standards and correlate the daily actions to strategic objectives of the company.

Secondly, at static budgeting by the end of the year the planning horizon that doesn't occur at the «sliding» budget considerably decreases. For example, the enterprise which once a year in November approves the budget for a year forward, in October has plans only for two next months. And when there will be a budget for January, it can appear that already late to order any resources the demand on which needed to be placed in three months prior to delivery, that is in October.

Voted budgets are obligatory to execution.

Voted budgets have to be executed is one of the basic rules. Otherwise all idea of planning and achievement of goals is nullified. It is necessary to punish for non-execution, for execution - to motivate.

From control to controlling.

Budgeting is a key element of system of intra firm control and correction of a strategic vector of development of the company. The budgetary control allows to trace quickly deviations from the set target values and to reveal tendencies of development of the company. So, the system of the budgetary management is a control system on deviations. Control system on deviations, instead of system on tracking and «elimination» of deviations. In practice of the companies it is often possible to meet a situation when the deviation for 5-10% from the planned values under articles of the budget forms the basis for «execution» of the head at the next expeditious meeting. Large corporations build in the registration systems function of blocking of payment on the account if the sum exceeds the set limit. As a result time of passing of the account and number of concord documents considerably increases that can't but affect efficiency. Certainly, the budgetary control will be organized in the company for the purpose of identification of «unauthorized» expenses, however more effective tool is introduction in the controlling company. Controlling is understood as process of monitoring of results of activity of the company in comparison with the planned purposes or budgets. The main destination of controlling is a granting to managers of information on how there is an advance to the planned purposes.

Distinguish two types of controlling - strategic and quick, depending on the temporary period. Strategic controlling is responsible for indicators which characterize business development - a market share, the market growth, market cost of the company. Expeditious financial controlling is responsible for the current indicators of activity - maintenance of profitability and liquidity of the company, implementation of average and short-term budgets.

The budgetary control is necessary for adoption of administrative decisions. Economically reasonable deviation has to serve as a signal for correction of the budgetary indicators. «Flexible» budgets are more preferable instrument of the budgetary management. The fixed budget is formed prior to the beginning of the planned period and isn't subject to revision («the budget is the law»). The flexible budget is analytical version of the budget. Distinctive feature of flexible budgets is that is a peculiar system of coordinates on which it is possible to estimate the actual development of the company and to introduce amendments in the budget to avoid possible problems in the future and beforehand to take the appropriate measures. In details worked budget which passed some iterations «from top to down» (establishment by the management of strategically focused budgetary indicators on the basis of marketing information) and «from below up» (development of operational budgets of divisions on the basis of actual data of last periods), allows to operate company resources with the maximum degree of efficiency. However, if in the middle of the budgetary period the strategic objective of development of the company changes, formal performance of the voted budget can serve as an obstacle. The corresponding points which allow to make changes to company budgets quickly have to be brought in regulations of budgeting. It should be noted also, what not all companies coordinate indicators of short-term planning (annual budgetary indicators) to indicators of long-term strategic planning. For a correct assessment of realization of strategy with use of budgeting it is necessary to formalize strategy in the form of financial performance for the long-term period (it is admissible, 5 years) then to make breakdown of financial performance for years.

Introduction of system of the budgetary management is defined by philosophy of the first person of the company. Not all heads are psychologically ready to delegation of financial responsibility for result of activity and prefer to interfere with operational management of the company. Not all deputies are professionally ready to assume financial responsibility, in fact to become heads of business units - divisions. Therefore in many cases gradual transition to the budgetary management is required. At the first stage there is an allocation of divisions in the centers of the financial account (CFA) without the right of independent decision-making in the field of formation of the income and expenses. Formats of budgets are developed uniform for divisions, the budgetary regulations are fulfilled (procedure of acceptance, adjustment, control and the analysis of the budgetary indicators), is carried out the preliminary analysis of implementation of budgets. During this period the motivation of heads of TsFU doesn't contact performance of financial and economic indicators of activity. And only after when it will be possible to draw a conclusion that the budgetary model of the company works effectively, power divisions should delegate on formation of financial result and to raise the status to level of the center of financial responsibility (CFR). At the same time with it the system of compensation focused on achievement of the budgetary indicators is entered. Making decision on introduction of budgeting is a serious step to new model of management of the company.

Thus, budgeting, in case of realization of the described complex of actions, is effective technology of a business management. New approaches to budgeting and planning.

The main idea is that the process focused budget planning concentrates the attention on studying of kinds of activity and their communication with achievement of strategic objectives. The method of accounting of expenses used together with process focused budget planning proceeding from features of production and services is based on identification of variations of the processes caused by specific requirements or conditions (features) of separate products and services. The knowledge of such «features» helps the companies to understand and minimize variations therefore expenses become more predictable and operated.

Transition to the process focused budgeting with calculation of expenses, proceeding from features of production and services, helps to solve many problems connected with traditional budgeting because:

- makes responsible and the account workers they operated the kinds of activity for performance of planned indicators; offers more realistic view of the volume of working loading, including influence of level of service, - allows to see the reasons of variations for which it is possible to take measures;

- gives the chance to understand how product/service cause demand (or interest) on a concrete kind of activity which, in turn, causes need for resources;

- creates possibilities of control at that level which allows to take the appropriate measures; does transparent management of excess and/or insufficient capacities.

We will consider briefly the principles of creation of cost which pay the main attention to organization improvement below.

Achievement of perfection by elimination of losses.

For stimulation of creation of cost the organization has to concentrate the efforts on elimination of losses (the kinds of activity which aren't creating a value added). Such system of budget planning and drawing up the reporting which will help to define and accurately to allocate the amount of losses in the organization is necessary to it.

All-widespread tactics to make organization losses visible consists in marking somehow such kinds of activity. Such marking will allow the management to group and summarize costs of kinds of activity not creating a value added within a certain business process, department or function.

Quality achievement at the expense of decrease in working loading. The problem of creation of cost demands search of ways of reduction of working loading without decrease in quality of the end result. It can achieve by correction of level of service or reduction of number of performance of separate elements. As key to the successful solution of a task of decrease in working loading the deep understanding of the demands made by consumers to the final product serves. It is more, than it is simple to know that wanted by consumers (both internal, and external). It also means understanding of an essence of the requirement for a concrete product and its intended use.

Approach change to used or not used functionality for the purpose of cost creation. In order that in the conditions of the today's market to manage to create cost, the organization has to change the approach to planning and pass from budget planning on the basis of variables and constant expenses to the budget planning aimed at creation of cost. Partially problems are connected with constants and variable expenses with the word «constants». When someone refers any expenses to category of constant expenses, there is a belief that with such expenses nothing already can be made. By definition, constant expenses are such expenses which aren't subject to change.

Instead of reflecting over something that it is impossible to change, the management has to concentrate the attention on used and not used functionality.

Definition by the organizations of practical and excess functionality. On a way to high quality the organization has to analyse the practical functionality. When excess functionality becomes obvious, the management of the organization can easily see a problem and make more reasonable solution of that it is necessary to undertake concerning such excess power.

Use of practical and excess functionality for planning of expansion of production.

Fast-growing productions sometimes increase output volumes by 30-100% a year. Such organizations in this case need to reflect on production expansion. They will need new workers, it is more than office rooms and computers. They too need to analyse the practical and not used functionality that will help when planning expansion of production. They need to consider that as they will gain additional functionality, only part of this additional functionality will be used immediately.

In the today's world, being characterized general aspiration to cost creation before planning production expansion, it is necessary to ask the following questions. Stages of process of planning.

All process of planning at the enterprise shares on 2 stages:

1. Development of strategy. 2. Tactics definition.

Development of strategy of firm. Before the organization of process it is necessary to be convinced of readiness of the organization for strategic planning. For example, if strategic planning is applied for the first time, it is necessary to begin smoothly. Probably, in the organization occurs too much new and therefore it is necessary to postpone strategic planning temporarily. It is important to understand that strategic planning gives the best effect at observance of the following conditions.

In the organization the control system is debugged.

2. The organization has the fulfilled channels of communications.

3. The organization is open for new ideas.

4. In the organization there is no bureaucracy domination.

As there is no correct process only, it is important to define that strategic planning is suitable for the organization. Whether it is correctly chosen the right time? Whether management is ready to process? Whether the thinking is correctly put? For example, if in the organization the people conceiving in short-term prospect dominate, it is necessary to be careful in process. It is important to explain advantages of strategic planning. As it was already spoken, strategic planning is a process of preparation for the future by consideration of options of a choice. The organization beginning Strategic planning begins with scheduling, that is before process it is necessary to define sequence of actions. For the organization of process it is necessary to consider some questions. Who will be engaged in strategic planning? What do we assume to make? How we will make it? The organization of process of strategic planning includes the following steps: Definition of expectations and informing of all involved in development of the strategic plan. What questions have to be mentioned? Receiving from the director general or the president of the accurate formulation of that he expects from strategic planning. Finishing of this information to data of all participants of process. Collection of information for the plan, for example, organization mission at present, main objectives, the plans which have been already executed. Poll of the main administrative structure and definition of key questions on the future. Definition of the purpose of the strategic plan. Definition of the period of planning. Generally, time has to be enough for transfer of an orientation of activity of the organization to the necessary party. What organizational purpose of the plan? Whether includes the plan all organization or only certain divisions? Achievement of the agreement concerning work of process of planning. Definition of extent of participation of groups of interested persons (stakeholders) in process. Preparation of a set of steps which will direct process. Completion of formation of committee of planning. Who participates? Who operates process? Distribution of responsibility and definition of requirements to resources. Strategic planning gets sense only when it is realized. The reasonable purposes are the most important component of effective planning, but they don't provide completely adequate reference points for decision-making and behavior. The purpose establishes that the organization wants to reach and when she wants to receive desirable result. However the method of achievement of the purpose isn't developed with such care that can lead to the appendix of efforts in the wrong directions. To avoid such mistakes, the management has to develop concrete instructions on ensuring achievement of the objectives and adjust process of implementation of the strategic plan. The central idea consists in coordination of actions on achievement of the planned purposes among themselves. Such components of formal planning, as tactics, policy, procedures and rules are for this purpose used. Tactics definition Just as the management develops the short-term objectives which are coordinating with long-term, and achievement facilitating them, it also develops short-term plans for achievement of these purposes, supporting long-term plans of the organization. Such short-term plans are called as tactics. Characteristics of tactical plans: Tactics is developed in strategy development. Tactics is often developed at the level of the management of an average link whereas strategists it is almost always developed at the highest levels of the management. Tactics is calculated on shorter intervals of time, than strategy. Tactical results, as a rule, easily correspond to specific actions and are quickly shown whereas results of strategy can't be completely found within several years.

11.2 Budgetary cycle

The concept of the budgetary cycle means by itself set of actions and actions for formation of the budget of the company. The budgetary cycle is subdivided into two main stages:

1. preparatory activities to budgeting process;

2. process of budgeting.

The preparatory stage includes:

1. identification of strategic reference points of the enterprise;

2. analysis of the external economic environment;

3. identification of strategic reference points of the business directions;

4. formation of internal standards.

Strategic planning covers the first three substages of the budgetary cycle. Very often strategic planning is reduced to drawing up the annual budget at the enterprise. It is connected with frequent and spontaneous changes of environment, i.e. changes in the legislation etc. In this regard strategic planning sometimes simply loses the importance and value in that understanding in which it and has to be. In modern economy strategic planning is reduced to business management in definition of the purpose and compliance of this purpose to the resources available, in the conditions of constantly changing economic environment, i.e. at strategic planning priority types of development, the most possible in modern conditions get out.

For any strategic objectives the following criteria are defined:

1. concreteness;

2. measurability;

3. approachibility;

4. sootnositelnost with concrete term of achievement.

The second substage of the budgetary cycle consists in formation of forecasts of environment for definition of the factors influencing the real development of the enterprise, and also on its future growth. The plan of these external factors or macroeconomic indicators is approved by the budgetary committee which is created specially as supervisory authority for management of the budgetary process. Macroeconomic factors treat:

1. forecast of a rate of inflation;

2. forecast of a rate of refinancing;

3. forecast of currency rates etc.

Except economic factors exist as well not economic, such as:

1. legislative factors;

2. competition factors;

3. factors political;

4. factors market etc.

This group of factors can't be neglected as on them often can depend much more, than on economic factors.

The following stage of the budgetary cycle is of importance due to the need of planning on all fields of activity of the company. Here priority activities get out.

After a stage of preparation directly process of budgeting is supposed. At this stage according to goals and tasks consolidation of available data which were submitted before by the centers of financial responsibility is made. Data are brought in the uniform general budget, corrected as required. Then the financial result and the rest of monetary cash is output to the predicted period. So, the budget represents the financial document created before estimated actions are carried out. Unlike formalized the profit and loss report or the balance sheet, the budget has no standardized form which has to be observed strictly.

The structure of the budget depends on that is a subject of the budget, the size of the organization, degree in which process of drawing up the budget is integrated with financial structure of the enterprise. The budget has to submit information well and clearly so that its contents was clear to the user. The budgetary cycle includes the following stages:

I. Planning of activity of the enterprise as a whole and on divisions.

II. Preparation of drafts of separate budgets.

III. Preparation of the draft of the general budget.

IV. Introduction of adjustments and coordination of budgets.

V. The adoption of the budget, design of feedback and the accounting of changing conditions.

11.3 Operational and financial budget

At the heart of budgeting the general (main) budget which represents coordinated on all divisions or functions the work plan for the enterprise as a whole lies. It consists of operational and financial budgets.

I. Operational budget.

A. Budget of sales.

B. Production budget.

C. Budget of production stocks.

D. The budget of purchases (use of materials or a factor cost on materials).

E. Budget of general production expenses.

F. Budget of labor expenses

G. Budget of business expenses.

H. Budget of the general and administrative expenses.

I. Expected profit and loss report.

II. Financial budget.

A. Budget of capital expenditure (the investment budget).

B. Budget of money (the cash budget).

C. Expected balance.

Operational budget.

The operational budget shows planned operations the forthcoming year for a segment or separate function of the company. In the course of its preparation predicted sales volumes and productions are transformed to quantitative estimates of the income and expenses for each of operating divisions of the company.

11.4 Example of drawing up the main budget

The budget represents the financial document created before estimated actions are carried out. Unlike formalized the profit and loss report or the balance sheet, the budget has no standardized form which has to be observed strictly.

The structure of the budget depends on that is a subject of the budget, the size of the organization, degree in which process of drawing up the budget is integrated with financial structure of the enterprise. The budget has to submit information well and clearly so that its contents was clear to the user. The budgetary cycle includes the following stages:

I. Planning of activity of the enterprise as a whole and on divisions.

II. Preparation of drafts of separate budgets.

III. Preparation of the draft of the general budget.

IV. Introduction of adjustments and coordination of budgets.

V. The adoption of the budget, design of feedback and the accounting of changing conditions.

Budget of sales.

* The forecast of sales volume is a necessary preliminary stage of work on preparation of the budget of sales.

* The forecast of sales volume turns into the budget of sales in case the management of the enterprise considers that the predicted sales volume can be reached.

By preparation of the budget of sales it is necessary to consider sales volume levels for the previous periods and to analyse a number of macroeconomic factors, each of which can have essential impact on sales volume and its dependence on profitability of production.

Reliability of a sales forecast increases as a result of use of combinations of expert and statistical methods:

Drawing up budget of sales:

* The budget of sales - an important step in drawing up the main budget; the assessment of sales volume influences all subsequent budgets.

* The budget of sales reflects monthly or quarter sales volume in natural and in cost indexes.

* The budget of sales is formed taking into account: level of demand on production of the enterprise, geography of sale, categories of buyers, seasonal factors.

* The budget of sales includes an expected cash flow from sales which will be included further and in revenues of the budget of cash flow.

* For the forecast of monetary receipts from sales it is necessary to consider collection coefficients which show, what part of shipped production will be paid in the first month (month of shipment), in the second, etc., taking into account adjustment on bad debts

Production budget.

*The budget of production is an output plan in natural indicators.

*The budget of production is formed proceeding from the budget of sales; it considers capacities, increase or reduction of stocks (the budget of production stocks), and also size of external purchases.

*The necessary volume of output is defined as an estimated stock of finished goods on the end of the period plus the sales volume for this period and a minus reserved finished goods for the period beginning.

Budget of production stocks.

*The budget of production stocks contains information necessary for preparation of the expected profit and loss report - regarding preparation of data on production prime cost of realized production and the expected balance sheet - regarding preparation of the normalized current assets given about a condition (raw materials, materials and stocks of finished goods) on the end of the planned period.

*The volume of a work in progress is defined, proceeding from technological features of production of production.

Budget of purchases.

*The budget of purchases is a plan of purchases of production from an assortment row in a section of types of production or on main suppliers. Shows how many and what production it has to be acquired by the enterprise at external (import) and internal suppliers.

*The budget of purchases is formed purchasing department proceeding from the budget of sales as the volume of purchases directly depends on sales volume. The volume of purchases of raw materials and materials depends on the expected volume of their use, and also on an estimated stock rate.

The formula for calculation of volume of purchases looks as follows:

The volume of purchases = use volume + stocks for the period end - stocks for the period beginning

*The budget of purchases, as a rule, is formed taking into account terms and an order of repayment of accounts payable for materials.

Budget of general production expenses.

*The budget of general production expenses reflects the volume of all expenses connected with production, except for costs of direct materials and a factor cost on compensation.

*General production expenses include a constant and a part variable. The constant component is planned, proceeding from requirements of production, variable part - as the standard, for example, from labor costs of the main production workers.

*The budget of general production expenses usually includes a number of standard articles of expenses: depreciation and rent of the production equipment, insurance, additional payments to workers, payment of unproductive time, etc.

Budget of labor expenses.

*Factor cost on compensation is costs of a salary of the main production personnel.

*The budget of labor costs is prepared, proceeding from the budget of production, data on labor productivity and rates of compensation of the main production personnel.

*In the budget of a salary of the main production personnel it is necessary to allocate two components:

1. the fixed part of compensation.

2. price-work part of compensation.

*If by the time of drawing up the budget the considerable accounts payable on salary payment collected, it is necessary to provide the schedule of its repayment.

Budget of business expenses.

In the budget of business expenses all expenses connected with sale, advance and goods storage are considered.

The budget of business expenses is formed taking into account the budget of variable general production expenses, the advertizing budget and other constant business expenses.

Variable business expenses (commissions, costs of packing, warehouse processing, transportation of goods to customers) depend on sales volume and purchases and are transferred from the budget of variable general production expenses.

Business expenses are grouped in criteria, basic of which are: types of production, category of buyers.

By drawing up the budget of business expenses in separate group constant expenses are allocated: expenses on advertizing and marketing and expenses on storage of goods in a warehouse. Size these expenses is planned on the basis of statistical data (expenses of the previous period taking into account seasonality) and solutions of management. For example, the decision on change of location of a warehouse or the area of rented rooms, can be made on revision of the sums of insurance coverings of commodity stocks and another.

Budget of the general and administrative expenses.

The budget shows all expenses which haven't been connected with commercial activity of the enterprise, namely: office charges, personnel maintenance costs, lighting and heating of constructions of non-productive appointment, business trip, communication services, taxes and percent for the credits relating on prime cost, etc.

* The general and administrative expenses have constant character.

* The budget of the general and administrative expenses is formed on the basis of budgets prepared by the responsibility centers.

Expected profit and loss report.

The expected report on profit and losses - the first of documents of the main budget, showing, what income was earned by the enterprise for the reporting period and what expenses were suffered.

Information on the income arrives from the budget of sales. Data on the expenses necessary for providing the planned sales volume are defined at calculation of prime cost of the realized goods. Information on expenses connected with the current activity of the enterprise arrives from the budget of business expenses and the budget of the general and administrative expenses.

Drawing up the expected report on profit and losses is the last stage by preparation of the operational budget.

Financial budget.

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