Functional budget is formed on the basis of the operating budgets of the enterprise. The economic activity of an enterprise can be represented as a set of certain functions. IN general view a set of these functions may look like this: sales, purchasing, production, storage, transportation, administration (management), financial activities and investment activities.
Purpose drawing up functional budgets is to determine the resource requirements for various areas activities of the enterprise. Functional budgets reflect the main decisions about the parameters with which the company’s business processes should be implemented (production volumes, prices, purchase volumes, etc.).
Sales budget.
The sales budget contains information about part of the economic indicators that characterize the effectiveness of the sales business process. All information on this business process, as a rule, is reflected in two budgets: the sales budget and the budget business expenses. The sales budget reflects the estimated volume of product sales, sales prices and possible revenue from the sale of these products.
Business expenses budget.
It contains information on indicators that mainly characterize the effectiveness of the sales business process. Selling expenses reflected in this budget include all costs associated with the sale of products. This is the variable part wages marketing department employees, transportation costs associated with delivering products to consumers, marketing costs, advertising, etc. The business expenses budget must ensure that the sales budget is met. These two budgets must be interconnected and any change in one of them must lead to adjustments in the indicators in the other. The business expenses budget format includes the following indicators:
1) the total amount of commercial expenses for the enterprise;
2) variable selling expenses (change in proportion to changes in sales revenue and volume products sold);
3) fixed business expenses;
4) the share of commercial expenses in sales revenue;
5) the share of transportation costs in sales revenue;
6) the share of expenses for product promotion in revenue;
7) the share of expenses for maintaining and servicing retail outlets in revenue;
8) profitability of commercial assets.
Production budget.
All information about the efficiency of the production business process is reflected in two budgets: the production budget and the production expenses budget.
The production budget contains information on production volumes in physical terms in terms of the range of products produced by the enterprise, as well as information on the degree of use of the enterprise's production capacity. The production budget is the source document for the operational management of production processes. The production budget format includes the following indicators:
1) production volume by type of product;
2) percentage of production capacity utilization;
3) equipment utilization rate;
4) level of work in progress;
5) level of labor productivity.
It is necessary to pay attention to the fact that part of the indicators of this budget is calculated by product groups, and part of the indicators by production lines. At the same time, products from various product groups can be produced on one line. Therefore, such an indicator as the percentage of production capacity utilization does not duplicate the indicator of equipment utilization rate. Equipment utilization rate shows how efficiently production lines are used according to production plan. And if the percentage of production capacity utilization is less than the equipment utilization rate, it means that the company produces a wide range of products, but in small volumes. The cost indicators of the production business process are reflected in the budget of production costs.
Budget for production costs.
This budget reflects all indicators associated with the company’s costs for producing the volume of products that was planned in the sales budget. At the same time, in addition to direct ones, this budget may also reflect indirect costs enterprises. The production cost budget format may contain the following indicators:
1) the total amount of production costs;
2) variable production costs;
3) fixed production costs;
4) percentage of compliance with production standards;
5) production cost for each type of product;
6) stocks finished products;
7) profitability of production assets.
Procurement budget.
It contains information about economic indicators, characterizing the supply business process. Depending on the complexity of organizing a given business process at an enterprise, the structure of the procurement budget is also selected. If a company deals with almost all purchases in one structural unit, then one procurement budget is developed, if in several structural units, then for each of them its own procurement budget is developed. As a rule, in large companies to control supply activities, a separate group of specialists engaged in monitoring is created market prices and controlling the purchasing activities of the enterprise.
Payroll budget.
It contains analytical information on departments regarding labor costs and assessing the effectiveness of the motivation system operating in the company. The wage budget must present all information on the company’s wages, and must also reflect the system of restrictions on maximum size constant salary and minimum size variable part of wages. The salary budget format may include the following indicators:
1) total wage fund;
2) total variable wage fund;
3) total permanent wage fund;
4) labor productivity;
5) staff turnover rate;
6) wage fund by structural divisions;
7) wage fund in the context of main business processes.
Administrative expenses budget.
Administrative expenses are the most difficult expenses to link directly to the business. It is believed that administrative expenses should not exceed 5% of the company's revenue. Otherwise, they will have a negative impact on the efficiency of the enterprise. Typically, this budget includes the following indicators:
1) total administrative expenses;
2) the share of administrative expenses in the company’s revenue;
3) administrative expenses by structural divisions of the enterprise.
The object of budgeting, information about which is contained in functional budgets, is the functions/business processes of the company. Those. functional budgets contain information about the main financial and economic indicators that characterize the efficiency of business processes performed in the company.
Thus, functional budgets determine the main decisions about the parameters with which the main business processes should be implemented (sales volumes, prices, revenues, production volumes, purchasing volumes, etc.). Functional budgets can contain information in both monetary and physical terms.
On the pages of this site you can find information on the following functional budgets:
On these pages you can find an explanation of why these functional budgets are needed in company management practice. Issues related to the regulations and financial model of budgeting are also considered. In addition, an example of functional budgets is given.
It is very important to note that these are examples of functional budgets, and not some typical and only correct allocation of functional budgets that can be used in any company. The set and format of functional budgets is determined by the company’s business processes, and since they are different in all companies, the functional budgets and their content will vary accordingly, i.e. composition of budget items.
However, after looking at these sample budgets, you can, so to speak, have your eye on some for your company. If your company already has a system of functional budgets, then you can compare your company’s budgets with those listed on this site.
You may find that some of the functional budgets discussed here are not used in your company, although they should be. Or, looking at examples of functional budget formats that are already used in the company, you may notice that the format of these budgets should be expanded by adding certain financial and economic indicators to them.
All examples of functional budgets given on the pages of this site can be used in the company for very specific practical purposes, which are also discussed on the corresponding pages of the site. Once again, you need to pay attention to the fact that the set of functional budgets presented above should in no case be perceived as the only correct option.
This is just an example. Each company will have to create its own budget classifier.
Note: more information about the use of functional budgets in company management can be found in Part I "Budgeting as a management tool" workshop seminar Alexander Karpov.
Regulations for functional (process) budgeting
The functional budgeting regulations determine how budgeting should be carried out for the company’s business processes and how this will be reflected in the company’s functional budgets.The set of functional budgets, in contrast to investment budgets and budgets of the Central Federal District, is not unambiguous. That is, several options for functional budgets can be developed for the same company.
Since the budgeting object itself, for which functional budgets are drawn up, is not unambiguous, the set of functional budgets may be different for the same company. Business processes of the same enterprise can be described in different ways, therefore the set of functional budgets can be different (see Book 1 “Budgeting as a management tool”).
Example general scheme functional budgeting regulations are given at Figure 1. In order not to clutter and complicate perception, this diagram does not show all possible relationships between the various sections of functional budgeting.
Fig.1. An example of a general scheme of functional (process) budgeting regulations
The above-mentioned pages of this site discuss the basic principles of regulation of functional budgeting in the context of all functional budgets, indicating important points inherent in every budget. An example of functional budgeting regulations is also given for each functional budget.
Note: More information about the functional budgeting regulations can be found in Part II "Regulations of the budgeting system" workshop "Budget management of an enterprise", which is conducted by the author of this article - Alexander Karpov.
Modeling of functional budgets
Each company may have its own set of functional budgets, and each of them may use a different model. That is, even if two different companies use the same set of functional budgets, the budget models themselves may differ.The complexity of budget models should be selected taking into account the manageability of financial and economic indicators, their significance and actual dynamics. Also, when developing functional budgets, it is necessary to ensure that the information contained in them is sufficient to consolidate financial budgets in terms of current activities.
Without functional budgets it is impossible to build the correct consolidation scheme financial budgets. One of the common mistakes that companies make when implementing a budgeting system is precisely that they do not have functional budgets that correspond to such a budgeting object as “Business Process/Function” (see Book 2 “Budgeting System Regulations” ).
This all comes from the fact that one of the basic principles is violated organizational design, which lies in the fact that the primary elements of the system are functions/business processes, and the secondary elements are the divisions, that is, the performers of these functions. When building a budgeting system, a company wants to implement budget formats that would allow it to achieve all budgeting goals at once (see Book 1, “Budgeting as a management tool”).
The end result is a mishmash, and none of the budgeting goals are achieved. That is, most often when developing budget formats, only linking them to departments is carried out. Objects such as "Business Processes" are not taken into account at all. In other words, it results in a mixture of different functions when, for example, OT&P may be responsible for preparing summary data on labor costs, but this does not mean that this entire amount should be in the OT&P budget. The HSE manager should only be responsible for the salaries of his employees.
A similar example is with transport. If the head of the transport department is responsible for consolidating transport costs by collecting applications from departments, this does not mean that he should alone be responsible for all transport costs.
The same picture emerges, for example, with energy costs. The chief energy engineer may be responsible for consolidating the planned total energy costs, but this does not mean that he alone is responsible for this entire amount. And if this item is only in his budget, then by this logic it turns out that it is he, and only he, who is responsible for this item. As a result, the company gets confused when conducting plan-fact analysis and trying to introduce real responsibility for the execution of budgets (see Book 4 " Financial structure company").
To prevent this from happening, you need to adhere to the following rule. Functional budgets are prepared to consolidate financial budgets and to improve the efficiency of the business processes to which they correspond. Budgets of the Central Federal District are drawn up for the purposes of motivation and responsibility of departments for achieving financial and economic performance indicators of departments.
Information from the budgets of the Central Federal District should not be used for further consolidation of financial budgets (with the exception of data on the variable part of remuneration, i.e., material incentive funds of the Central Federal District). The information contained in the budgets of the Central Federal District is the final destination. This information is needed not for consolidation purposes, but to monitor the performance of financial responsibility centers (FRCs), evaluate their activities and their motivation.
Very often this principle is violated, and as a result the company gets many problems. Perhaps the company is also trying to save on paper (and it seems like time is also saved) and does not introduce, as it may seem at first glance, unnecessary functional budgets, but practice shows that this opinion is wrong.
Note: More information about the development of functional budget models can be found in Parts III" Financial model budgeting" workshop "Budget management of an enterprise", which is carried out by the author of this article -
Operating budgets
As already noted, an appropriate budget is drawn up for each central federal district. The number of operating budgets cannot be more or less than the number of responsibility centers.
The main task of drawing up operating budgets is planning and monitoring the results of the activities of the Central Federal District, i.e.
Operating budget fully describes the activities of the responsibility center and all its business operations in financial language.
The activities of the unit begin with planning the results of its activities with a description of the program of action, therefore, budgeting of the Central Federal District is carried out upon planning the activities of the responsibility center. After planning, the resources that will be consumed to achieve the planned result are calculated.
The operating budget is a tool for delegating financial powers to the head of the Central Federal District. Naturally, the delegation of authority will be accompanied by responsibility for the results of the activities of the central financial district, which will be expressed in the form of profit standards, marginal profit, income or costs (depending on the status of the responsibility center).
With correct and correct planning, items and expense norms must be drawn up for each responsibility center, which are calculated in the budget depending on the planned income of the Central Federal District or the company. Financial service must monitor the compliance of costs incurred by the Central Federal District with both the approved budget and planned income.
If the revenue side of the budget is not respected, its expenditure side must also be revised. Variable cost items must be recalculated based on the results achieved. Fixed expenses for the Central Federal District should not be increased by decreasing the absolute value variable expenses provided in connection with the decrease in income. For example, let the budget of the Central Federal District be approved at the level of 100,000 rubles. These data are calculated for the Central Federal District based on a sales volume of 200,000 units. Expenses of 100,000 rubles. for this Central Federal District were calculated based on a variable component in the amount of 2% of sales and a constant component of 60,000 rubles. Sales took place at the level of 150,000 units. Accordingly, the total expenses of this Central Federal District should have been 90,000 rubles. However, the head of the Central Federal District made a decision on non-target dis-
Organization budget management in the company in the Central Federal District 217 circulation of funds and carried out additional expense at 10,000 rubles. This example demonstrates the need to standardize not only the absolute value of expenses, but also those items for which they are incurred. Therefore, for control purposes, a list of possible expenditure items for the Central Federal District and their amounts will be necessary.
Functional budgets
Functional budgets are built based on the functions of the company - its business processes. A typical company carries out following functions:
procurement;
sales;
transportation;
management, etc.
Budget items that are formed according to the relevant functions of the company constitute the company's functional budgets. The main purpose of functional budgets is to calculate the company's need for resources to carry out the relevant functions.
The company needs to establish a relationship between functional and operating budgets. For example, such a functional budget as the “purchasing budget” is at the same time the operating budget of the Central Federal District - the supply department. Each functional budget is compiled for the entire company, so the system of functional budgets forms its budget structure. The principle of forming functional budgets is to group them by type of activity (functions, processes) of the company.
As an example, we can highlight such company functions as sales, purchasing, warehousing and storage, advertising and marketing, transportation and management. Accordingly, the grouping of these functional budgets may look as shown in Fig. 3.3.
IN in this case, unlike the final budgets for cost elements, budgets generated for the final cost elements (for example, labor costs, material costs etc.). This is due to the fact that this presentation of budgets is formed by type of activity of the company in the context of its commercial activities and management. In table 3.5 shows an example of a possible list of functional budgets for a company.
218 Chapter 3 Budget for business expenses
Sales expense budget
Transport budget
Budget for warehousing and storage costs
Budget for supply costs
Management Cost Budget
Rice. 3.3. An example of the composition of a company's functional budgets Table 3.5. Possible list of functional budgets 1.
Sales budget 1.1.
Product sales budget 1.2.
Sales budget for fixed assets 1.3.
Budget for other sales 2.
Procurement budget 2.1.
Budget for purchases and direct expenses attributable to cost 2.1.1.
Budget for purchases of goods 2.1.2.
Budget for transport costs included in cost 2.1.3.
Budget for customs clearance costs 2.2.
Procurement budget for expenses of functional services in the Central Federal District 2.2.1.
Procurement budget for sales needs 2.2.2.
Procurement budget for warehousing needs 2.2.4.
Procurement budget for the needs of thermal power plants 2.2.5.
Procurement budget for management needs 2.3.
Budget for the purchase of fixed assets and capital investments
Organization of budget management in a company in the Central Federal District 219 3. Budget for commercial expenses 3.1.
Budget for sales expenses 3.1.1.
Budget for sales expenses (sales department 1) 3.1.2.
Budget for sales expenses (sales department 2) 3.2.
Budget for transport costs 3.3.
Budget for warehousing costs 3.3.1.
Budget for expenses for acceptance, placement and packaging 3.3.2.
Budget for documentation costs 3.4.
Marketing department budget 3.5.
Cost budget for the supply service 3.5.1.
Expenditure budget for the foreign trade sector 3.5.2.
Expenditure budget for the customs clearance sector 3.5.3.
Cost budget for the certification sector 3.6.
Project budget 3.6.1.
Expenditure budget for current projects 3.6.1.1.
Project expenses 1 3.6.1.2.
Project expenses 2 3.6.1.3.
Project expenses 3 4.
Budget for administrative expenses 4.1.
Budget of expenses for the financial directorate 4.2.
IT Directorate Expense Budget 4.3.
AHO expenditure budget 4.4.
Budget for expenses of the secretariat and office managers 4.5.
Budget for legal service expenses 4.6.
HR budget 4.7.
Budget of expenses of the General Director 5.
Tax budget 5.1.
VAT budget 5.2.
Payroll budget 5.3.
Budget for fees in the Pension Fund 5.4.
Tax budget for vehicle owners 5.5.
Income tax budget 5.6.
Land tax budget 6.
Personnel cost budget 7.
Budget for balances of goods and inventories at the beginning of the period 8.
Budget for balances of goods and inventories at the end of the period 9. Budget accounts receivable at the beginning of period 10.
Accounts receivable budget at the end of the period 11.
Budget accounts payable at the beginning of period 12.
Accounts payable budget at the end of the period 13.
Budget for investment activities 13.1.
Investment budget 13.1.1.
Investment project A 13.1.2.
Investment project B 14.
Budget financial activities 14.1.
Own capital budget 14.2.
Budget of expenses for payment of interest on attracted capital 15.
Traffic budgets Money 15.1.
Income budget for core activities 15.2.
Budget of receipts from clients 15.3.
Budget of payments for core activities 15.3.1.
Payment schedule for goods 15.3.2.
Payment schedule for expenses related to the cost of goods 15.3.3.
Payment schedule for commercial expenses 15.3.4.
Payment schedule for administrative expenses 15.3.5.
Tax payment schedule 15.4.
Budget for other payments and receipts 15.5.
Revenue budget for financial activities 15.5.1.
Budget for revenues to the UV and other funds 15.5.2.
Budget for receipts of loans and borrowings 15.6.
Budget of payments for financial activities 15.6.1.
Budget for repayment of loans and borrowings 15.6.2.
Budget for interest payments on loans and borrowings 15.6.3.
Dividend payment budget 15.7.
Receipt budget for investment activities 15.7.1.
Budget of receipts in the form of payments for operating systems 15.7.2.
Budget for dividend receipts from participation in the share of other companies 15.8.
Budget of payments for investment activities 15.8.1.
Budget of payments for the purchase of fixed assets and capital investments 15.8.2.
Budget for payments in the form of acquisition of shares in MFs of other companies 15.9.
Income budget for other activities 10.15.
Budget for payments for other activities
Organization of budget management in a company in the Central Federal District 221 Depending on the needs of the company, the highest level budgets (listed in the table) can be detailed to budgets of more than low level, and those (in turn) can also be detailed even more deeply. For example, the budget for material costs can be detailed into a fuel consumption budget, an MBP consumption budget, etc.
Depending on the company's needs, the top-level budgets (listed in the table) can be detailed down to lower-level budgets, which (in turn) can also be further detailed. For example, the budget for material costs can be detailed into a fuel consumption budget, an MBP consumption budget, etc.
The relationship between functional and operating budgets is presented in Table. 3.6 - using the sales budget as an example. It shows the interconnection of budgets based on sales income. In a similar way, the interconnection is built according to expenditure budgets and cost centers.
Table 3.6. Interrelation of functional and operating budgets Functional budget of the company Name of the Income/Cost Center BDR BDDS Balance Sheet Income Center "Wholesale sales, region 1" Income from sales in region 1 Income from sales in region 1 Assets
divisions by region 1 1 Sales, product A 2 Sales, product B 3 Sales, product C Functional sales budget for the company Income center "Wholesale sales, region 2"
4 Revenues from sales by region 2
Sales, product A Sales, product B Sales, product C Revenues from sales by region 2 Assets
divisions by region 2
Terms and abbreviations
| Budget | - | indicators of economic activity grouped according to criteria accepted in the organization. |
| Budgeting (budget management) | - | organization management system by responsibility centers through budgets , allowing you to achieve your goals through the most efficient use of resources. |
| Organization budget | - | a plan drawn up for a certain period of time in physical and monetary terms and determining the organization’s need for resources necessary to obtain planned income. |
| Budget structure | - | hierarchy of operational, functional and final budgets of the organization. |
| Operating budget | - | budget describing business operations separate division organization (financial responsibility center). |
| Consolidated budgets | - | the result of the consolidation of functional budgets, reflecting the state of solvency (Cash Flow Budget), profitability (Revenue and Expense Budget) and value (Balance Sheet Budget) of the organization. |
| Budget item | - | component of the budget for which planning and accounting is carried out business transactions one type. |
| Financial structure | - | hierarchy of financial responsibility centers interacting with each other through budgets. |
| Functional budget | - | a budget that describes a specific functional area of the organization’s activities (sales, supply, production, etc.). |
| Business transaction | - | the simplest event in the activities of an organization that caused the occurrence of income, costs, expenses, receipts or payments of funds, the formation of balances or the movement of inventory items. |
| Income center (RC) | - | structural subdivision responsible for the income it brings to the organization through its activities. |
| Cost center (CC) | - | a structural unit responsible only for incurred costs. |
| Investment Center (CI) | - | structural unit that has the right to dispose non-current assets organization (to carry out investments and disinvestments) and responsible for the amount of ROI (return on investment). |
| Marginal Income Center (MCC) | - | a structural unit responsible for marginal income (the difference between revenue and direct costs) within its activities. |
| Profit center (CP) | - | a structural unit responsible for the amount of profit earned within its activities (the difference between revenue and total costs). |
| Center for Financial Responsibility (FRC) | - | a structural unit (or group of units) that carries out a certain set of business operations, capable of having a direct impact on expenses and/or income from this activity, and, accordingly, is responsible for these items of expense and/or income. |
| Center financial accounting(CFU) | - | a structural unit that keeps records of the income and/or expense indicators established for it, but is not responsible for their value. |
1.
General provisions
1.1. Basic principles
The purpose of drawing up and maintaining budgets is planning and accounting financial results activities of the organization.
Depending on the object of management, budgets are divided into organizational, functional and operational budgets.
From the point of view of the subject of budgeting, the following types of budgets are distinguished:
cost budgets describing cash flows and liabilities;
natural-cost budgets that describe asset turnover in physical and monetary terms.
Budgets consist of items for which planning and accounting of business transactions of the same type is carried out.
A business transaction is the simplest event in the activities of an organization that causes the occurrence of income, costs, expenses, receipts/payments of funds, the formation of balances or the movement of inventory items.
Income- an increase in capital due to the growth of assets (reduction of liabilities) of the organization, obtained in the process of implementation economic activity for the period (not at the expense of owners’ contributions). There are three sources of income:
for core activities - income received in the process of carrying out core activities: volume of sales of products, goods, services;
for financial activities - income from court loans and other financial transactions;
for other activities - income from the sale of fixed assets, materials, raw materials, as well as from the provision of property for rent.
Expenses- costs of material and financial resources borne by an organization in the process of carrying out its business activities to obtain future income. To maintain budgets, the following classification of costs is used:
basic - costs that are directly traceable to the source of their occurrence and, accordingly, directly attributable to the cost of production: costs of materials, process electricity, wages of main production workers;
overheads are costs that do not have a direct connection with the products manufactured and therefore are not directly attributable to the cost of production. Overhead costs will be attributed to the activities of the specific division where they arose, or the entire organization, according to a standard established empirically in accordance with the selected cost distribution base.
Profit- excess of income over expenses. Profit is formed by levels as the corresponding groups of expenses are subtracted: gross, operating, before taxes, net, undistributed. The structure of profit levels is intended for analysis and allows you to determine how a particular group of expenses affects the final result.
The Deputy Director for Economics and Finance was appointed Commissioner for Budgetary Management.
1.2. Scope of application
This Regulation on the budget structure (hereinafter referred to as the Regulation) applies to all divisions of InTechProject LLC.
The provision applies to:
internal use in solving management problems of InTechProject LLC;
providing a documented base for the budget management system;
ensuring the continuity of the functioning of the budget management system and the implementation of its requirements during changing conditions.
1.3. Development, approval and modification
The Regulations are updated, revised and issued notices of changes by the Deputy Director for Economics and Finance. The developed Regulations and amendments to it are approved by the Director.
Each employee of InTechProject LLC can submit their proposals for changing or supplementing sections of the Regulations to the Budget Management Commissioner with justification of arguments on the proposed issue.
The provision is reviewed if changes occur that may be the result of adjustments in the organization's strategy, production relations, undertaken both for a more complete and targeted compliance with internal management needs and environmental requirements.
2. Budget structure of the enterprise
2.1. Consolidated budgets
In accordance with the principles of budget management, the organization sets its development goals, which are expressed in specific financial terms liquidity, profitability and cost and reflect the state of the organization to which it will come if it is possible to implement all the decisions planned to achieve its goals. These indicators are reflected in the Consolidated Budgets, which include:
Budget of Income and Expenses (BDR);
Cash Flow Budget (CFB).
The BDR reflects the formation of the economic results of the organization’s activities in the form of profit or loss. The purpose of its compilation is to manage the profitability/profitability of the organization. The structure of the BDR should disclose:
structure (sources of formation) of the organization’s income;
structure (directions of spending) of the organization’s expenses;
volumes of income and expenses (total, by groups of items and by individual items);
the difference (ie profit or loss) between income and expenses for a period.
The structure of the BDR involves the sequential subtraction of the corresponding expense items from the gross financial results (revenue, marginal income).
BDDS reflects the movement of funds (cash flow) by type of funds and directions of their movement. The purpose of its preparation is to manage the solvency (liquidity) of the organization.
From the point of view of the direction of cash flows, there are 2 types of movement:
receipt to the organization's accounts/cash;
payments from the organization's accounts/cash registers.
The structure of the BDDS allows you to plan, take into account and analyze cash flows in sections:
direction of cash flows;
structures of payments and receipts in the directions of their movement;
volumes of payments and receipts (total, by groups of items and by individual items);
intermediate and final results (differences between receipts and payments);
cash balances.