Budgeting Essay Example | Topics and Well Written Essays - 250 words

Budgeting - Essay Example Forecasting should not be mistaken with budgeting. Forecasting is a management tool used for planning and setting a goal. Forecasting makes use of past and present data, and trend analysis to estimate sales, or to estimate demands for a product. It uses statistical data in estimation and uses management expertise, knowledge and judgment (GeminiGeek, n.d. ) An operating budget is a projection of estimated income and expenses that is based on the forecasted sales which is usually done for a short term period, normally for one year while a cash budget is a way of monitoring the cash flow of a business. Cash budget makes it easy to see how much money comes in and out for the period, thus, it becomes a simple way to monitor the financial condition of the business or household. A cash budget can be done either on a weekly or monthly period for an accurate monitoring (Business Directory, n.d.) Zero budgeting departs from the traditional budgeting wherein all expenses must be justified for every new budgeting period and every function within the organization is analyzed. Zero budgeting starts from zero and does not take into account prior year’s budget (Cronin, Tom). For instance, if you have a budget of $20,000 for a campaign in 2011 and it did not produce good result, the manager must justify why he needs the same budget for 2012. The manager must develop a plan from zero-base and justify why, where and how he will spend the money of the company. In other words, if the manager proposes a campaign for a product, he would pinpoint the projected expenses and profit to show its feasibility so that the company could assign a particular budget for that. All budget proposals are then analyzed and ranked according to importance. The system lets the management identify priorities, allows management to compare and analyze the needs of every unit in the organization and make funding allocation. In zero based, budgets are built