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Naturally, the term profit plan is not suitable for public-sector firms. Organizations such as a fire
department do not generate a net income. For public-sector organizations, master budget is the more
logical term for the total budget package. Because we are concerned with both public- and privatesector
organizations, we use master budget predominantly. However, be aware of profit plan, because
it is used occasionally in practice.
The Budget Review Process
The budget plan determines the allocation of resources within the organization. Typically, the
resources available are less than the demand for the resources. Consequently, there should be some
systematic process for evaluating all proposals relating to the budget. The process of systematically
evaluating budge proposals is referred to as the budget review process.
In the early planning stages, budget review may not be a formal process. Sometimes a few people
(or even a single individual) may make the budgeting decisions. For example, production-line
supervisors may determine resource allocations within their departments. Next, a plant budget
committee may evaluate budget proposals for all production supervisors. The budget proposals for the
entire plant go to a division budget committee, and the final budget review is made by a budget
committee of the controller and corporate vice presidents.
The budget review process varies among organizations. Even within a single firm, different budget
review processes may be used in various segments of the firm and at various levels of responsibility.
However, the basic review process is fairly standard.
Accountants and financial managers participate in the preparation and implementation of the
budget, but all business managers, including marketing managers, production supervisors, purchasing
officers, and other nonfinancial managers are interested in developing budgets for their particular part
of the business. In addition, each functional manager must be keenly interested in selling his or her
budget to higher-level management. Selling the budget means convincing the budget review
committee that a particular budget proposal should be accepted. For some managers, selling the
budget is the single most important activity in their job, because if they fail at this task, even a
tremendous management effort cannot obtain desired results.
With such an awesome description of the importance of selling the budget, one might conclude that
it is an exceedingly difficult process. Not so! Actually, the process requires a mixture of logic and
diligence. There is no precise formula for success, but some common suggestions are to:
• Know your audience.
• Make a professional presentation.
• Quantify the material.
• Avoid surprises.
• Set priorities.
Know Your Audience