Budgeting for the Total Firm

Abstract

In the previous chapters we have examined how the firm could evaluate and choose between various courses of action. As we saw in Chapter 10 strategic decisions are usually concerned with broad policy, and it is normally operating decisions which are reflected in detail in the budgets. A central part of the process of decision-making is the forecast of costs and benefits of the alternatives. The alternatives chosen will form the basis of the set of budgets for the total firm which will present the implications of aggregating the forecast costs and benefits of all the decisions taken by the management of the firm. The budgets provide a useful method of control by acting as criteria against which to measure actual performance. The forecasting and the control aspects of budgets cannot be completely separated, but for expositional purposes this chapter examines the process of budgeting and in Chapter 15 we examine budgetary control.