Quantitative methods in budgeting

C. B. TILANUS, EDITOR This book tries to strengthen the ties between, on the one hand, the business administration and accounting world and, on the other, the operational research and management science world. The readership for which it is intended consists ofthe following categories: managers and professionals in organizational departments of business administration, management science, automatic data processing, etc. ; management and operational research consultants; and students in academic departments of business administration, business economics, operational research, information systems, industrial engineering, etc. The book deals with the quantitative approach. to budgeting problems. Budgeting in this text is defined as the making of a financial, short-term plan for an organization. The budget is financial. Although volumes and prices play their part, the budget is finally expressed in terms of amounts of money thus allowing of the well-known two-way counting and balancing of double bookkeeping. (Whether items appear twice on the assets and liabili­ ties sides of balances, or are counted twice in the rows and columns of a matrix is immaterial. ) The budget is short-term. It is a detailed, quantitative plan of action in the near future. In this sense, budgeting is opposed to strategic planning which considers the course of action to be taken in the medium and long term. Strategic planning is of a more aggregative, qualita­ tive nature than is budgeting. The budget is a plan for an organization, and as such it is complete.

Table of Contents:
1. Introduction.- 2. People and Techniques in Budgeting.- 2.1. The effectiveness of budget control systems.- 2.2. The wood and the trees.- 2.3. Potential psychological gains in using quantitative methods.- 2.4. Quantitative methods in assessing the social aspects of a control system.- 2.5. Conclusion.- 3. Balanced Transfer Values in Scheduling, Costing and Recompensing.- 3.1. Extended introduction and summary.- 3.2. Linear programming and accountancy.- 3.3. Models of the values as well as the measures of flows.- 3.4. Linking objects: transferrers of value.- 3.5. Balancing procedures: evaluation of intracompany trade.- 3.6. Degrees of freedom and channels of valuation.- 3.7. Ancillary interrelations in costing and recompensing.- 3.8. Recapitulation.- 4. Ratio Network Models and their Application in Budgeting.- 4.1. Ratio network models.- 4.2. Budgeting with the help of the ratio network method.- 5. The Development of a Budgeting Model.- 5.1. Introduction.- 5.2. The preliminary phase.- 5.3. The conceptual side.- 5.4. The general model.- 5.5. The first phase.- 5.6. The second phase.- 5.7. Conclusions with respect to the implementation.- Appendix 5.1. Mathematical description of the generalized model.- 6. Cost Accounting, Planning and Budgeting.- 6.1. Cost functions and product costing.- 6.2. The relations between production centres.- 6.3. Alternative production methods of economically homogeneous products.- 6.4. Planning, linear programming and unit costs.- 6.5. Planning, budgeting and costs.- 6.6. Example.- 7. Stochastic Budgeting.- 7.1. Introduction.- 7.2. Probability distributions.- 7.3. Some specific distributions.- 7.4. Relations between the variables.- 7.5. Computer program.- 7.6. Interval boundaries and policy.- 7.7. Concluding remarks.- Appendix 7.1. Flow-chart ofcomputer program.- Appendix 7.2. Interval exploitation budget.- Appendix 7.3. A definition of subjective probability.- 8. Variance Analysis, Flexible Budgeting and Responsibility Accounting.- 8.1. Classical variance analysis.- 8.2. The flexible-budgeting approach to variance analysis.- 8.3. Multi-stage, multidimensional variance analysis.- Appendix 8.1. Two-stage, two-dimensional variance analysis with flexible budgeting.- Appendix 8.2. Algebra and numerical example of two-stage, three-dimensional variance analysis with flexible budgeting.- 9. Where Short-Term Budget Meets Long-Term Plan.- 9.1. Next year’s budget in conflict with first year of long-term plan.- 9.2. Using budget pattern for disaggregation of long-term plan.- 9.3. The multiproportional RAS algorithm.- 9.4. Taking account of prior information.