- 2067 Asar (old course) · 8 marks
Define budgeting; types; purpose for new project
Short answer
Budgeting is preparing a detailed plan of expected income and expenditure for a future period. Types include long-term/short-term, sales, production, cash, fixed, flexible, operating, and project budgets. Essentials for a new project: clear objective, support, budget committee, realistic estimates from feasibility studies and market surveys, and contingency. Purpose: estimate total project cost, arrange financing, control costs, forecast cash flow, and secure approvals.
Define budgeting. List out different types of budget. Explain the essentials and purpose of budgeting for a new project.
Budgeting
Budget is a detailed plan, in money and/or quantities, of the expected income and expenditure of an organisation or project for a future period. Budgeting is the process of preparing and using budgets.
Types of budget
| Basis | Types |
|---|---|
| Time | Long-term and short-term budget |
| Function | Sales, production, material, labour, overhead, cash, capital expenditure, master budget |
| Flexibility | Fixed budget and flexible budget |
| Purpose | Operating budget and financial budget (cash, capital) |
| Project use | Project budget (cost of the whole project) |
Essentials of budgeting for a new project
- A clear objective and strong support from top management.
- A budget committee and budget officer with a clear authority.
- A sound organisation structure with defined responsibility centres.
- A good accounting and cost record system.
- Realistic targets based on past data and forecasts.
- Participation of the persons who will carry out the budget.
- A budget period and a budget manual that are well defined.
- Regular reports on variances and flexibility to revise.
For a new project there are no past data, so estimates from feasibility study, market survey, similar projects and supplier quotations are used, with a contingency.
Purpose of budgeting for a new project
- To estimate the total project cost and the funds required (capital, working capital).
- To arrange the financing and the timing of fund release.
- To control cost during design and construction.
- To allocate funds to activities and work packages.
- To forecast cash flow and avoid shortage.
- To measure performance (planned vs actual) and take corrective action.
- To get approval from the owner, lenders or government.
- To compare alternatives and check the viability of the project.
✓ Answer checked by Claude Opus 5.5 (high effort)
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