SESSION 9

Strategic Planning
and Budgeting:
Policy, Programs,
and Budget
Lectured by Prof. Dr. Ferdinand D. Saragih, MA
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Strategic Planning
There are three main
parts to the strategy
planning process.

Irwin/McGraw-

Slide 8-1

Reviewing
Reviewing ongoing
ongoing
programs
programs
Considering
Considering proposals
proposals
for
for new
new programs
programs
Coordinating
Coordinating
programs
programs by
by means
means of
of
aa formal
formal strategic
strategic
planning
planning system
system

The McGraw-Hill Companies,

Strategic Planning

Slide 8-2

Should this activity

How much
Should it be done
Making a zerocontinue to be
Is too muchshould it
internally, or should
Is there
a more
based
review of
performed at all? being done? cost?
it be contracted to
efficientan
way
of
expense
Too little?
an outside firm?
obtaining the
center involves
desired results?

asking basic
questions about
each significant
activity of the
center.

Irwin/McGraw-

The McGraw-Hill Companies,

Uses of the Budget

Slide 8-3

ItItserves
servesas
asan
anaid
aidin
inmaking
makingand
andcoordinating
coordinatingshortshort-

range
rangeplans
plans

ItItis
isaadevice
devicefor
forcommunicating
communicatingthese
theseplans
plansto
tothe
the
various
variousresponsibility
responsibility center
centermanagers
managers

ItItis
isaaway
wayof
ofmotivating
motivatingmanagers
managersto
toachieve
achievetheir
their
goals
goals

ItItserves
servesas
asaabenchmark
benchmarkfor
forcontrolling
controllingongoing
ongoing
activities
activities

ItItcan
canbe
bethe
thebasis
basisfor
forevaluating
evaluatingthe
theperformance
performanceof
of
responsibility
responsibility centers
centersand
andtheir
theirmanagers
managers

ItItis
isaameans
meansof
ofeducating
educatingmanagers
managers
Irwin/McGraw-

The McGraw-Hill Companies,

The Master Budget

Slide 8-4

The three principal parts of the master budget are:

An operating budget, showing planned operations
for the coming year, including revenues, expenses,
and changes in inventory and other working
capital items
A cash budget, showing the anticipated sources
and uses of cash in that year
A capital expenditure budget, showing planned
changes in property, plant, and equipment

Irwin/McGraw-

The McGraw-Hill Companies,

Master Budget Components

Slide 8-5

Operating Budget
Sales
Budgets

Production
Budgets

Other
Budgets

Budgeted Income
Statement

Capital
Budgets
Minor Capital
Projects

Cash Budget
Budgeted Balance Sheet
Irwin/McGraw-

The McGraw-Hill Companies,

Master Budget Components

Slide 8-6

Operating Budget
Sales
Budgets

Production
Budgets

Other
Budgets

Capital
Budgets

Press one of the orange keys to see a detail of that

particular budget or the green key to skip the details
Irwin/McGraw-

The McGraw-Hill Companies,

Master Budget Components

Slide 8-7

Sales
Budgets
Revenue
Sales
Administration
Advertising
Click here
to return to
Slide 24-6

Expense
Region A

Etc. for
each region

To budgeted income statement

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The McGraw-Hill Companies,

Master Budget Components

Slide 8-8

Direct Labor

Production
Budgets

Direct Material
Overhead
Production Staff
Department A
Flexible Budget

Return
to Slide
24-6

Etc. for
each
production
department

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Inventory Budget

Department B
Flexible Budget

Purchase
Budget
Cost of
Sales
Budget
To Budgeted
Income
Statement

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Master Budget Components

Slide 8-9

Other Budgets
General and
Administrative

Research and
Development
Personnel Budget

General
Management
Controller
Treasurer
Etc. for
other staffs

Irwin/McGraw-

Return
to Slide
24-6

Budgeted Income
Statement
The McGraw-Hill Companies,

Master Budget Components

Slide 8-9

Capital Budget
Project A
Project B
Etc. for Each
Major Project

Minor Capital
Projects
Return
to Slide
24-6
Irwin/McGraw-

Cash Budget
and Budgeted
Balance Sheet
The McGraw-Hill Companies,

Balanced Scorecard System

Slide 8-10

A
Afinancial
financial perspective
perspective
How
How do
do we
we look
look to
to our
our
shareholders?
shareholders?
A
Acustomer
customerperspective
perspective
How
How do
do we
we look
look to
to our
our
An
customers?
An internal
internal business
business customers?
prospect
prospect perspective
perspective
What
are
An
learning
What business
business processes
processes
are
An organizational
organizational
learning
the
and
the value
value drivers?
drivers?
and growth
growth perspective
perspective
Are
Are we
we able
able to
to sustain
sustain
innovation,
innovation, change,
change, and
and
improvement?
improvement?
Irwin/McGraw-

The McGraw-Hill Companies,

Budget Timetable

Slide 8-11

Setting
Setting planning
planning guidelines
guidelines

Preparing
Preparing the
the sales
sales budget
budget

Initial
Initial preparation
preparation of
of other
other budget
budget components
components

Negotiation
Negotiation to
to agree
agree on
on final
final plans
plans for
for each
each

component
component

Coordination
Coordination and
and review
review of
of the
the components
components

Final
Final approval
approval

Distribution
Distribution of
of the
the approved
approved budget
budget

Irwin/McGraw-

The McGraw-Hill Companies,

Sales Budget

Slide 8-12

Basically, there are two ways of making estimates as

a basis for sales budgets:
Make
Make aa statistical
statistical forecast
forecast on
on
the
the basis
basis of
of aa mathematical
mathematical
analysis
analysis of
ofgeneral
general business
business
conditions,
conditions, market
market
conditions,
conditions, product
product growth
growth
curve,
curve, and
and the
the like
like
Make
Make aa judgmental
judgmental estimate
estimate
by
by collecting
collecting the
the opinions
opinions of
of
executives
executives and
and salespersons
salespersons
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The McGraw-Hill Companies,

Budget Commitment

A ceiling
A floor
A guide

Irwin/McGraw-

Slide 8-13

No more than
$X
be
Atshould
least $Y
spent
shouldfor
bebooks
spent
and
periodicals
Approximately
for employee
$Z
may be spent
training.
for overtime.

The McGraw-Hill Companies,

Budget Revisions

Slide 8-14

Lets
This
Letssolve
solvethis
thisissue
issueby
by
Thisrevision
revisionprocess
process
having
isistime-consuming
havingaabaseline
baselinebudget
budget
time-consumingand
and
If
Ifaabudget
budgetcannot
cannot
and
obscures
andaacurrent
currentbudget.
budget.
obscurescompany
companyobjectives.
objectives.
be
berevised,
revised,ititwill
will
no
nolonger
longerbe
berealistic.
realistic.

Irwin/McGraw-

The McGraw-Hill Companies,

The Cash Budget

Slide 8-15

Two approaches to preparing a cash budget:

Start
Start with
with the
the budgeted
budgeted balance
balance sheet
sheet and
and
income
income statement
statement and
and adjust
adjust the
the amounts
amounts
thereon
thereon to
to derive
derive the
the planned
planned sources
sources and
and uses
uses
of
of cash
cash
Analyze
Analyze those
those plans
plans having
having cash
cash flow
flow
implications
implications and
and directly
directly estimate
estimate each
each of
of the
the
inflows
inflows and
and outflows
outflows of
of cash
cash

Irwin/McGraw-

The McGraw-Hill Companies,

The Cash Budget (January)

Gross
Grossshipments
shipments
Cash
Cashbalance
balancebeginning
beginningof
ofmonth
month
Add:
Add: cash
cashreceipts
receipts
Collections
Collectionsof
ofaccounts
accountsreceivable
receivable
Miscellaneous
Miscellaneousreceipts
receipts
Total
Totalreceipts
receipts
Total
Totalcash
cashavailable
available
Less:
Less: cash
cashdisbursements:
disbursements:
Operating
Operatingexpenses
expenses
Materials
Materialspurchases
purchases
Dividends
Dividends
Total
Totaldisbursements
disbursements

Slide 8-16

$1,200
$1,200
375
375
1,380
1,380
66
66
1,446
1,446
1,821
1,821

Continue to next slide

Irwin/McGraw-

810
810
503
503
112
112
1,425
1,425

The McGraw-Hill Companies,

The Cash Budget (January)

Slide 8-17

This
Thisisisthe
thebeginning
beginning
balance
balancefor
forFebruary.
February.
Total
1,821
Totalcash
cashavailable
available
1,821
Total
1,425
Totaldisbursements
disbursements
1,425
Cash
$$ 396
Cashbalance
balanceatatend
endof
ofmonth
month
396

Irwin/McGraw-

The McGraw-Hill Companies,

The Cash Budget (February)

Slide 8-18

Gross
$1,987
Grossshipments
shipments
$1,987
Cash
396
Cashbalance
balancebeginning
beginningof
ofmonth
month(from
(fromJanuary)
January)
396
Add:
Add: Cash
Cashreceipts
receipts
Collections
1,350
Collectionsof
ofaccounts
accountsreceivable
receivable
1,350
Miscellaneous
81
Miscellaneousreceipts
receipts
81
Total
1,431
Totalreceipts
receipts
1,431
Total
1,827
Totalcash
cashavailable
available
1,827
Less:
Less: Cash
Cashdisbursements:
disbursements:
Operating
915
Operatingexpenses
expenses
915
Materials
570
Materialspurchases
purchases
570
Taxes
60
Taxes
60

Continue to next slide

Irwin/McGraw-

The McGraw-Hill Companies,

The Cash Budget (February)

Slide 8-19

Total
Totalcash
cashavailable
available
Less:
Less: Cash
Cashdisbursements:
disbursements:
Operating
Operatingexpenses
expenses
Materials
Materialspurchases
purchases
Taxes
Taxes
Pension
Pensioncontribution
contribution
Total
Totaldisbursements
disbursements
Cash
Cashbalance
balanceatatend
endof
ofmonth
monthbefore
beforebank
bankloan
loan
Bank
Bankloan
loan
Cash
Cashbalance
balanceend
endof
ofmonth
month

Irwin/McGraw-

1,827
1,827
915
915
570
570
60
60
210
210
1,755
1,755
72
72
80
80
$$ 152
152

The McGraw-Hill Companies,

The Capital Expenditure Budget

Slide 8-20

In the capital expenditure budget, individual

projects are often classified by purpose, such as--

Cost
Cost reduction
reduction and
and replacement
replacement
Expansion
Expansion and
and improvement
improvement of
of existing
existing
project
project lines
lines
New
New products
products
Health,
Health, safety,
safety,and/or
and/or pollution
pollution control
control
Other
Other

Irwin/McGraw-

The McGraw-Hill Companies,

Session 8

Thank you

Irwin/McGraw-

The McGraw-Hill Companies,