Budget Management is the process in place to forecast the required amount to cover operational costs, and prepare for future contingencies. A sound budget system will guarantee the continuous financial stability of a company.
Ideal Process to manage a budget effectively:
- Track and include all Current & Known costs
Consider including in the budget potential costs that may be incurred and assign a probability mechanism if necessary
- Develop a process to budget future costs that are unknown
- The more adept decision-makers make it a standard develop to link their marketing goals with their overall budget. This process guarantees that the company will always meet its financial obligations.
A company’s Budget Management should cover virtually every potential cost outlined in three categories:
- Common Costs (CCs): They include the costs an organization will incur regardless of volume or future market changes. These costs are certain. Generally, they include overhead costs such as the lease/mortgage, building maintenance, utilities, signed contracts, insurance, office salaries, taxes, etc. They are automatically transferred from the previous period.
- Potential Costs (PCs): They are those costs an organization projects to incur if some situations were to evolve. Essentially, budgeting for PCs is like formulating a backup or contingency plan. Think about it like being a responsible homeowner that sets money aside each year for inevitable repair and maintenance expenditures that he might encounter over the years; like replacing a roof, a hot water heater, or an air conditioning unit. All can be major expenditures, but can also be quite bearable if taken into account before the emergency arose. For this part of the budgeting, Prime Dash enables the decision-maker to assign a probability of occurrence to those potential costs.
- Unknown Costs (UCs): They include unexpected costs that will befall on an organization in a given year. These extraordinary costs usually include nature’s fury such as earthquakes, hurricanes, floods, tornadoes, etc. They may also consist of unexpected contingencies such as lawsuits, riots, vandalisms, etc. For this part of the budgeting system, Prime Dash allows the decision-maker to assign a percentage from the combined value of the Common Costs and Potential Costs.
- The assurance that the organization will be able to meet every
- The assurance that the organization will be able to cover future contingencies as they arise
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