PLANNING, BUDGETING CONCEPTS 1. Budget is developed in advance of the period that it covers. 2. Budget is based on forecasts and assumptions.

3. Budget is NOT something that is primarily for the purpose of restricting what can be done. 4. Budget is a planning tool and guideline to follow in order to achieve the companys planned goals & objectives. 5. Budgeting process is inseparably linked to planning process. (Budgeting process <---> Planning process) 6. Major planning decisions by mgt are required before the budget can be developed. 7. Development of budget may cause previously developed short-term plans by mgt require adjustments. i.e. mgt may be required to adjust the previously developed shortterms plans according to the budget. 8. After the plans & budget have been adopted, as the period unfolds, the budget provides control and feedbacks. PLANNING IN ORDER TO ACHIEVE SUPERIOR PERFORMANCE 1. For most companies the ultimate objective is to achieve Superior Performance in comparison with the performance of their competitors. 2. When superior performance is achieved, Company profitability will increase, when profitability are growing, shareholders value will grow. Superior performance Profitability increase Shareholders value increase 3. A publicly-owned for-profit company must have maximizing shareholders value as its ultimate goal. 4. Shareholders (Owners) have provided risk capital with the expectations that the managers will pursue strategies that will give them good returns of their investments. 5. Mangers have an obligation to invest companys profit in such a way that shareholders value will be increased. 6. Shareholders want to see the profitable growth: high profitability and also sustainable profit growth. 7. A company with profit but whose profits are not growing will not be valued as highly by shareholders as a company with profitability and profit growth. 8. Attaining and maintaining both profitability and profit growth is one of the biggest challenges that managers facing. THE ROLE OF THE MANAGEMENT IN ATTAINING PROFITABLE GROWTH 1. There are two (2) opposing philosophies with respect to the role of Mgt 1. Market Theory: gives Mgt a passive role and views its function basically as making reactive decisions to respond to the environmental events as they occur. 2. Planning and Control Theory: views the role of Mgt as an active one that emphasizes the planning function of Mgt and its ability to control the activities on the business. 2. When Mgt operates more closely to the planning and control theory, it has more ability to reduce the randomness of events and to deal productively with that do occur. THE EXTERNAL ENVIRONMENT IN PLANNING AND BUDGETING 1. A business must interact with its external environment. 2. External environment includes influences that will impact the plans that Mgt makes. 3. The external events will impact not only companys plan but also its budget 4. Although the past financial results & information may be used in developing the budget for the next period, the budget is still a documented expression of what the company would like to accomplish financially in future period. 5. Past is not a predictor of the future, and the plan and the resulting budget should reflect the conditions anticipated for the coming period, NOT the conditions that existed in the past periods. 6. There are three (3) interrelated environments effects Mgts pallning and budgeting 1. The Industry in which the Company operates 2. The Country or National Environment in which the Company operates 3. Macro environment in which the Company operates.