Page 1: What is a budget?
A budget is a financial plan that sets out, using figures, an organisation's expected future results. For planning purposes, organisations can use many different types of budgets. For example:
- Income and expenditure budgets. These show how much an organisation expects to receive and to spend in future periods.
- Production budgets. These set out how much an organisation must produce in coming periods of time in order to meet demand.
- Profit budgets. These bring together planned sales, costs, and profit figures.
By creating budgets, managers can:
- set out a clear plan, involving target figures for defined periods of time
- communicate their targets clearly
- motivate employees to achieve these targets
- control performance by monitoring actual outcomes against planned targets
- meet the organisation's objectives.
This case study illustrates how Kraft Foods uses budgets to enable it to meet business objectives related to financial performance with a view to achieving its vision: to become 'the undisputed global food leader.'
Kraft has several important objectives related to its vision. These include:
- being the employer of choice
- being a food industry high performer
- becoming an indispensable partner to customers
- being a responsible organisation and a positive force in the communities in which Kraft employees live, work and make its products
- remain focused and innovative.
Budgets help Kraft to meet these objectives in a planned forward-thinking way.
Budgets are created through consultation with all areas of the business, to achieve a shared understanding about objectives for the future visions of their teams. The Finance team supports and contributes to the work generated by other business functions to build and secure their support for the budget.
To be effective Kraft recognises that a budget must be challenging but also realistic, so that people feel it can be achieved and is worth working towards. One important element is to identify cost savings that can be re-invested to continue to grow Kraft's powerbrands and to develop its people. Reducing costs by eliminating waste is vital in the modern food industry which is driven by price competition and consolidation in the retail sector.