In the course of planning - which compiles targets and measures and should ensure that they are achieved - budgeting adopts two roles:
1. Budgeting demonstrates the numerical effects of the planned measures. It is first possible to check whether the budgeted target, which is always fixed as a numerical value in the short-term range, will be achieved through the measures.
2. Once planning is complete, budgeting saves the planned measures and the anticipated effects. It serves as a basis for reporting and a continuous standard when implementing the measures.
The selection of basic targets is an important initial step in planning and a simultaneous task of management or of the proprietor. It is possible to derive operational targets from these long-term basic targets for a short-term approach (for the coming year perhaps).
Action planning is derived from the individual business areas from these given targets. The result of this action planning is in many cases an unevaluated quantity structure (e.g.: the number of required or available employees, production quantities, set-up times, sales figures in units) that must be summarized and evaluated by the controlling department. This summarization and evaluation provides a business budget that illustrates the total performance from the individual departments (bottom up).
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