Table of Contents
Foreword xvPreface xvii
PART ONE: INTRODUCTION TO THE BUDGETING PROCESS
Chapter 1: Integrating The Balanced Scorecard for Improved Planning and Performance Management 3
Overview 3
Elements of a Balanced Scorecard 5
Use of Strategy Maps 11
Scorecard Cascading 12
Bringing It All Together 13
Integrating the Scorecard with Planning and Performance 14
Balanced Scorecard and Annual Planning 15
Continuous Strategic Management with the Scorecard 22
Summary 24
Chapter 2: Strategic Balanced Scorecard–Based Budgeting and Performance Management 25
Introduction: Why Most Companies Fail to Implement Their Strategies 25
Why a few Companies Produce Exceptional Results 26
Measure your Strategy with Balanced Scorecard 34
Balanced Scorecard-Based Budgets 37
Performance Management 38
Summary 39
Chapter 3: Budgeting and the Strategic Planning Process 41
Definition of Strategic Planning 41
Planning Cycle 42
Strategic Planning Process: A Dynamic Cycle 44
Situation Analysis 46
Business Direction/Concept 58
Alternative Approaches 61
Operational Plan 62
Measurement 66
Feedback 66
Contingency Planning 68
Problems in Implementing Formal Strategic Planning Systems 69
Summary 70
Chapter 4: Budgeting and Forecasting: Process Tweak or Process Overhaul? 71
Introduction 71
Survey Methodology 72
Findings: Budgeting Process 72
Findings: Forecasting Process 86
Report Summary 89
Developing a Road Map for Change 90
Chapter 5: The Budget: An Integral Element of Internal Control 93
Introduction 93
The Control Environment 94
Planning Systems 96
Reporting Systems 98
Summary 102
Chapter 6: Relationship Between Strategic Planning and the Budgeting Process 103
Introduction 103
How to Plan 103
The Audience for Whom the Plan Is Designed 104
Strategic Business Planning and Its Role in Budgeting 105
Planning Differences among Small, Medium, and Large Organizations 106
Components of Strategic Planning 107
Management and Organization 108
Market Analysis 110
Formulation of Marketing Strategies 111
Operations Analysis 112
Summary 114
Chapter 7: The Essentials of Business Valuation 115
Introduction 115
Understanding the Valuation Assignment 117
Research and Information Gathering 120
Adjusting and Analyzing the Financial Statements 123
Three Approaches to Valuing a Business 125
Income Approach 125
Market Approach 132
Asset Approach 135
Making Adjustments to Value 136
Reaching the Valuation Conclusion 141
Chapter 8: Moving Beyond Budgeting: Integrating Continuous Planning and Adaptive Control 145
Introduction 145
Annual Budgeting Trap 146
Why Some Organizations Are Going Beyond Budgeting 147
Beyond Budgeting: Enabling a More Adaptive Performance Management Process 148
Climbing the Twin Peaks of Beyond Budgeting 152
Beyond Budgeting: Enabling Radical Decentralization 153
Chapter 9: Moving Beyond Budgeting: An Update 161
Introduction 161
Beyond Budgeting Round Table (BBRT) 162
Guardian Industries Corporation 163
PART TWO: TOOLS AND TECHNIQUES
Chapter 10: Implementing Forecasting Best Practices 169
Introduction 169
Budgeting versus Forecasting 170
Implementing Forecasting Best Practices 170
Forecasting Best Practices: Process 171
Forecasting Best Practices: Organization 174
Forecasting Best Practices: Technology 176
Conclusion 178
Chapter 11: Calculations and Modeling in Budgeting Software 181
Introduction 181
Why Companies Use Budgeting Software 181
Calculations in Accounting Systems and Spreadsheets 183
Budgeting Software 184
OLAP Databases 186
Modeling and Budgeting 188
Processes 189
More Complex Budgeting Calculations 190
Conclusion 192
Chapter 12: Cost-Accounting Systems: Integration with Manufacturing Budgeting 193
Introduction 193
Decision Factors in the Selection Process 194
Cost-Accounting System Options 195
Costs Associated with a Product 195
Labor Cost 196
Variable Costing and Budgeting 197
Full Costing and Budgeting 217
Cost-Accumulation Procedures 219
Valuation: Actual versus Standard 221
Actual Costing 223
Actual Costing, Budgeting, and Cost Control 226
Standard Costing 226
Variance Reporting 231
Variances and Budgeting 236
Manufacturing Overhead 236
Manufacturing Overhead, Budgeting, and Cost Control 247
Chapter 13: Break-Even and Contribution Analysis as a Tool in Budgeting 249
Introduction 249
Break-Even Analysis 249
Price/Volume Chart 254
Contribution Analysis 255
Cost–Volume–Price and the Budgeting Process 261
Chapter 14: Profitability and the Cost of Capital 263
Introduction 263
A Market Gauge for Performance 265
Coping with the Cost of Equity 266
Building Company-Wide Profit Goals 268
Building Divisional Profit Goals 270
Information Problems and Cost of Capital 276
Summary 276
Chapter 15: Budgeting Shareholder Value 279
Introduction 279
Long-Term Valuation 281
Economic Value Added 285
Complementary Measures of Valuation 290
Budgeting Shareholder Value 293
Summary 296
Chapter 16: Applying the Budget System 297
Introduction 297
Initial Budget Department Review of Divisional Budget Packages 299
Divisional Review Meetings 302
Budget Consolidation and Analysis 303
Preliminary Senior Management Review 303
Final Revision of Operating Group Plans 304
Second Budget Staff Review of Operating Group Plans 304
Revised Consolidated Budget Preparations 305
Final Senior Management Budget Review Sessions 305
Operating Groups’ Monthly Submissions 306
Effective Use of Graphics 306
Summary 306
Chapter 17: Budgets and Performance Compensation 307
Introduction 307
Measures of Executive Performance 308
Structuring Reward Opportunities 316
Pitfalls of Linking Incentives to Budgets 317
An Optimal Approach 320
Adjusting Operating Unit Targets 324
Budgets and Long-Term Incentive Plans 326
Summary 328
Chapter 18: Predictive Costing, Predictive Accounting 329
Internet Forces the Need for Better Cost Forecasting 329
Traditional Budgeting: An Unreliable Compass 330
Activity-Based Costing as a Foundation for Activity-Based Planning and Budgeting 331
Budgeting: User Discontent and Rebellion 331
Weary Annual Budget Parade 333
ABC/M as a Solution for Activity-Based Planning and Budgeting 334
Activity-Based Cost Estimating 335
Activity-Based Planning and Budgeting Solution 336
Early Views of Activity-Based Planning and Budgeting Were Too Simplistic 337
Important Role of Resource Capacity Causes New Thinking 337
Major Clue: Capacity Exists Only as a Resource 339
Measuring and Using Cost Data 340
Usefulness of Historical Financial Data 341
Where Does Activity-Based Planning and Budgeting Fit In? 344
Activity-Based Planning and Budgeting Solution 345
Risk Conditions for Forecasting Expenses and Calculated Costs 350
Framework to Compare and Contrast Expense-Estimating Methods 352
Economics 101? 355
Chapter 19: Cost Behavior and the Relationship to the Budgeting Process 357
Introduction 357
Cost Behavior 357
Break-Even Analysis 360
Additional Cost Concepts 365
Differential Cost Concepts 368
Maximizing Resources 370
Estimating Costs 373
Summary 375
PART THREE: PREPARATION OF SPECIFIC BUDGETS
Chapter 20: Sales and Marketing Budget 379
Introduction 379
Overview of the Budget Process 379
Special Budgeting Problems 384
Pertinent Tools 389
Unique Aspects of Some Industries 392
Summary 394
Chapter 21: Manufacturing Budget 395
IIntroduction 395
Concepts 400
Changing to a Cost-Management System 402
Problems in Preparing the Manufacturing Budget 407
Three Solutions 410
Technique 410
Determining Production Requirements 411
Step 1: Developing the Plannable Core 413
Step 2: Obtaining Sales History and Forecast 413
Step 3: Scheduling New and Revised Product Appearance 415
Step 4: Determining Required Inventory Levels 416
Step 5: Establishing Real Demonstrated Shop Capacity 418
Step 6: Publishing the Master Schedule 424
A Total Quality Program - The Other Alternative 425
Inventory and Replenishment 431
More on the Manufacturing Budget 434
Determining Raw-Material Requirements 434
Determining Other Indirect-Material Costs 436
Determining Direct-Labor Costs 437
Establishing the Manufacturing Overhead Functions and Services 440
Quality Control Economics Review Questions 447
Plant Engineering Buildings and Equipment Maintenance
Review Questions 449
Floor and Work-in-Process Control Review Questions 450
Summary 451
Chapter 22: Research and Development Budget 455
Relationship of Research and Development and Engineering to the Total Budgeting Process 455
Problems in Establishing Research and Development and Engineering Objectives 459
Developing a Technological Budget 465
Preparing a Departmental Budget 481
Managing a Budget 484
Coordinating Project Budgets 490
Chapter 23: Administrative-Expense Budget 493
Introduction 493
Role and Scope of the Administrative-Expense Budget 493
Methods Used for Preparing the Administrative-Expense Budget 498
Factors that Impact the Administrative-Expense Budget 502
Unique Issues Impacting the Administrative-Expense Budget 503
Tools and Techniques for Managing the Administrative-Expense Budget 504
Summary 506
Chapter 24: Budgeting the Purchasing Department and the Purchasing Process 507
Description and Definition of the Process Approach 507
Role of Process Measures 512
Process Measures 513
Creating the Procurement Process Budget 517
Chapter 25: Capital Investment Review: Toward a New Process 519
Introduction 519
Context of the Revised Capital-Investment Review Process 520
Benchmarking Capital-Investment Review Best Practices 523
Revised Capital-Investment Review Process: Overview 527
Implementation: What Bonneville Learned in the First Three Years 541
Summary 544
Chapter 26: Leasing 545
Introduction 545
Overview of the Leasing Process 546
Possible Advantages of Leasing 549
Possible Disadvantages of Leasing 550
Types of Lease Sources 550
Lease Reporting 552
Lease versus Purchase Analysis 560
Financial Accounting Standards Board Rule 13 Case Illustration 564
Negotiation of Leases 565
Selecting a Lessor 566
Lease-Analysis Techniques 566
Lease Form 572
Summary 579
Chapter 27: Balance-Sheet Budget 581
Introduction 581
Purpose of the Balance-Sheet Budget 582
Definition 582
Responsibility for the Budget 583
Types of Financial Budgets 587
Preparing Financial Budgets 588
Preparing the Balance-Sheet Budget 591
Adequate Cash 620
Financial Ratios 620
Analyzing Changes in the Balance Sheet 628
Chapter 28: Budgeting Property and Liability Insurance Requirements 635
Introduction 635
Role Risk Management Plays in the Budgeting Process 637
Types of Insurance Mechanisms 638
Role of Insurance/Risk Consultants 639
Use of Agents/Brokers 639
Self-Insurance Alternatives 640
Identifying the Need for Insurance 643
Key Insurance Coverages 645
Identifying Your Own Risks 650
How to Budget for Casualty Premiums 653
Summary 656
PART FOUR: BUDGETING APPLICATIONS
Chapter 29: Budgeting: Key to Corporate Performance Management 659
Future of Budgeting 659
Adding Value to the Organization 660
Corporate Performance Management 661
Developing a Budget Process Focused on Implementation of Strategy 662
Role of Technology 666
Overcoming Organizational Resistance 669
Planning and Controlling Implementation of a New System 670
Conclusion 675
Chapter 30: Zero-Based Budgeting 677
Introduction 677
Problems with Traditional Techniques 678
Zero-Based Approach 679
Zero-Based Budgeting Procedures 680
Decision Package 681
Ranking Process 687
Completing the Profit and Loss 689
Preparing Detailed Budgets 692
Summary 695
Chapter 31: Bracket Budgeting 697
Introduction 697
Application of Bracket Budgeting 698
Premises to Profi ts? 699
Developing a Tactical Budgeting Model 700
Bracket Budgeting in Annual Planning 719
Consolidating Income Statements 720
Summary of Benefits 720
Summary 722
Chapter 32: Program Budgeting: Planning, Programming, Budgeting 723
Introduction 723
Description of Program Budgeting 724
History 728
Framework of Program Budgeting 734
Program Structuring 747
Types of Analysis 751
Installation Considerations 759
Summary 763
Chapter 33: Activity-Based Budgeting 767
Introduction 767
Traditional Budgeting Does Not Support Excellence 768
Activity-Based Budgeting Defi nitions 771
Activity-Based Budgeting Process 774
Linking Strategy and Budgeting 775
Translate Strategy to Activities 780
Determine Workload 781
Create Planning Guidelines 783
Identify Interdepartmental Projects 783
Improvement Process 787
Finalizing the Budget 787
Performance Reporting 788
Summary 790
PART FIVE: INDUSTRY BUDGETS
Chapter 34: Budgeting For Corporate Taxes 793
Introduction 793
Taxation of C Corporations 794
Personal Holding Company Tax 799
Net Operating Loss Utilization 799
Charitable Contributions 800
Taxation Budget 802
Federal Corporate Tax 803
Purposes 804
Tax Return 804
Chapter 35: Budgeting in the Global Internet Communication Technology Industry 805
Overview 805
Essentials from Earlier Chapters 806
Freemium Strategies 808
Volunteer Services 809
Enterprise Risk Management 811
About the Editor 813
About the Contributors 815
Index 825
