Cost Management: Measuring, Monitoring, and Motivating Performance, 2nd Edition

CHAPTER 10

Static and Flexible Budgets

In Brief

Organizations communicate and advance their vision and strategies through short-term and long-term budgets. Managers use budgets in their control systems to measure, monitor, and motivate employees to achieve organizational goals. They evaluate organizational performance by comparing actual operations to budgeted plans, with an aim to improve operations and increase planning accuracy. Some organizations provide employee incentives for meeting or exceeding budget-based benchmarks. When developing and using budgets, managers must consider the business risks that might cause organizational performance to deviate from plans, and also identify and adjust for potential biases that could result in poor forecasts.

This Chapter Addresses the Following Questions:

• Q1 How do budgets contribute to the strategic management process?
• Q2 What is a master budget, and how is it prepared?
• Q3 What are flexible budgets, and how can they be used for sensitivity analysis?
• Q4 How are budget variances calculated and used as performance measures?
• Q5 How do behavioral tensions influence the budgeting process?
• Q6 What approaches exist for addressing the problems of traditional budgeting?

PLANNING FOR A MOVING TARGET

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