Level 2 and 3 Diploma in Business Support (4475-12/13)

Unit 308 Principles of budgets in a business
environment
Guidance notes
Outcome 1 Understand the purpose of budgets in a business
environment
1. The candidate should explain the purposes of budgets ie:
• authorise and delegate authority
• communicate plans
• co-ordinate activities
• define standards and targets of performance
• encourage precision in expressing and quantifying plans
• generate a clear plan for action for a period of time
• motivate management and staff
• provide a framework for responsibility and control
• translate aims and objectives into financial terms
• manage financial resources effectively
• to meet legal requirements.
Outcome 2 Understand how to develop budgets
1. The candidate should explain:
• that a format or formats based on agreement should be able to fulfil the needs of all users of
the budget.
• the format should be ‘fit for purpose’ to ensure clear communication between levels of
authority within organisations.
• at functional level the content and details (eg budget categories) should be appropriate for
management responsibilities and authority to be understood.
• at all levels of authority within the organisation the budget format(s) should facilitate coordination
of effort, monitoring, control and feedback in respect of the deployment of
resources.
2. The candidate should explain:
Estimations aim to provide as accurate a forecast as possible. For example, line-by-line
estimates encourage the consideration of all costs, potential variables, past experience and
make allowance for inflation and contingencies.
Ways of doing so:
By using estimations, thought can be given to necessary and non-essential expenses, obtaining
best price/value for money, priorities and key elements of the budget to make best use of
resources.
Estimations can be made using breakdowns on, for example, a task-by-task or person-by-person
basis. Quotations obtained from external and internal sources and calculations on recent past
experience are useful in making estimations.
Estimates can be subjected to sensitivity analysis to develop flexible budgets.
180 Level 2 and 3 Diploma in Business Support (4475-12/13)