02 - Budgeting Intro Flashcards
What is top-down/enforced budgeting?
Senior management make a budget and provide it to staff lower down, who are expected to achieve them.
What is bottom-up/participation budgeting?
Each department comes up with a budget that they think they can achieve which is then passed up to senior management to review and agree.
What is negotiated budgeting?
When different levels of management work together to create a budget that everyone is happy with, it will often involve a few rounds of adjustments to ensure there is no budget slack and that it remains realistic.
What is incremental budgeting?
When last years budget is adjusted to reflect changes is anticipated inflation or market growth, often just adding a certain % to the current budget.
What is zero based budgeting (ZBB)?
When a budget starts from zero and every cost needs to be justified again, even if it was included in last years budget
What is a rolling budget?
When a budget is set at the start of the year and revisited throughout the year to insure its is still accurate. For example, if a recession hits the budget set when previously might no longer be achievable
What is activity based budgeting (ABB)?
When a budget is set based on based on what activities drive each cost (cost drivers). For example, administration costs are driven based on the number of customer orders handled, if the total number of orders handles has increased then the costs associated are also likely to have increased.
What is priority based budgeting?
When a budget is set by analysing each element of spending and grouping them into categories based on importance; Essential/highly beneficial/beneficial. It is similar to ZBB but does not necessarily need to start at zero each time
What is contingency budgeting?
When a budget is created to with a portion that has not been allocated and is used to deal with unexpected financial issues, as a sort of insurance if anything goes wrong. This is often used from a projects budget.
