3.9.2 (HL)—Constructing budgets

A budget is a financial plan for a stated period. It converts expected activity into planned revenue, costs, staffing, output or marketing spending, then gives managers a reference point for monitoring performance.

Historical budgeting starts with past figures and adjusts for expected changes such as inflation, demand or exchange rates. Zero-based budgeting starts each spending item at zero and requires evidence for every request; it can challenge waste but takes more time and skill.

Departmental budgets are combined into a master budget. A sales forecast may drive production, staffing and marketing plans, so the numbers should be coordinated rather than prepared as isolated targets. Negotiation and available finance also shape the final allocation.

A budget is not a prediction that must be obeyed regardless of context. It is an agreed plan and control baseline; weak data, biased assumptions or a sudden market change can make a technically precise budget poor guidance.