A plan for an organization's outgoing expenses and
incoming revenues for a specific time period.
Budget planning begins with high level
budgets, primarily the entity-wide capital and operating budgets.
§ Many firms plan the capital budget on an entity-wide basis, choosing not to further divide it
into individual department budgets. Individual budget items for the high level capital budget may nevertheless appear in categories. And, these may represent
major components of the firm's asset structure, such as "Inventory purchase".
§ On the other hand, large
firms almost always plan spending and revenues for the operating budget in the framework of a budget
hierarchy.
o Individual
line items in the top level operating budget may carry the names of departments
or groups, such as "Marketing." Or, items may name basic roles, such
as "General management and administration".
o In the
budgeting process, senior managers first set spending levels for higher level
categories such as the "Marketing Budget." . Then, Marketing managers
further apportion this into lower level budgets for areas such as market research,
advertising, and events.
The two top level budgets together
essentially cover spending for the entire entity.
Exhibit 2 shows a few of the levels in one firm's budget hierarchy:
Exhibit 2 shows a few of the levels in one firm's budget hierarchy:
Malaysia budget hierarchy
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