The use of budgeting in a company makes it possible to plan and control the utilization of the company’s resources, coordinate various departments’ activities, and manage their contribution to achieving the company’s goals and objectives. If a company uses a project-based approach to operations, a separate collection of actual indicators and planning for each project must be organized thoroughly. The most challenging step in project budgeting is to agree on the budget with financial experts at the end of each planning stage. There are several such stages: project preparation, start-up, implementation, and adjustment.
The management accounting policy makes it compulsory to agree on the project budget for each project phase. I consider this stage to be the most difficult because it requires a detailed and responsible analysis of the drawn-up budget (Gupta, 2017). In addition, the budget reconciliation phase must include the preparation of supporting information. The budget justification consists of analyzing whether the specified costs in the budget are sufficient to carry out the project. The finance department assesses each item based on current market prices for comparable services or materials, checking that allowances are calculated correctly. After the budget check, a cost-benefit analysis is carried out, and the critical project indicators are recorded (Aziz & Shah, 2021). To approve the project budget, one needs to ensure that these indicators are aligned with the company’s goals and that the project is implemented with maximum efficiency at the specified cost. If the project has a complex cost structure and several subdivisions, it is advisable to conduct additional sensitivity analysis. This will allow one to assess the impact of various factors on the project’s bottom line.
References
Aziz, H., & Shah, N. (2021). Participatory budgeting: models and approaches. In Rudas, T., & Péli, G. (Eds.). Pathways Between Social Science and Computational Social Science. Computational Social Sciences. Springer.
Gupta, D. (2017). Capital budgeting decisions and the firm’s size. International Journal of Economic Behavior and Organization, 4(6), 45-52.