Operational Budgeting

A related but distinctly separate aspect of business finance is creating an operational budget. An operational budget is an accounting of all of a business’s financial inflows and outflows. It projects the need for money in each area of the business by establishing a budget for each area of the business. The business’s past performance can act as a baseline for forecasting future performance. For example, sales data from the past three years can allow the business to see trends in sales. That, in turn, helps the business project future sales and get an estimate of what their future revenues will be for their operating budget. As the business goes about its activities, it can then use the budget as a decision-making guide to how much they can spend in a given area and which types of spending they ought to try to reduce. The operational budget can give them a measuring stick for whether or not their revenues and operating costs are on target and in a profitable range (Rovney, 2010).

The operational budget differs from the capital budget. For example, the operational budget is a comprehensive view of the entirety the company’s operating expenditures, which includes capital expenditures. An operating budget can be considered in terms of daily, weekly, monthly, or annual expenses. Capital budgeting, on the other hand, only deals with large investments and purchases. It has nothing to do with medium-and small-sized everyday expenses. It is generally considered in terms of the life of the project—generally months or years. The two budget concepts are related, however, in that capital budgeting is an important aspect of healthcare finance that falls under the umbrella of operational budgeting (Rovney, 2010).

* Rovney, A. (2010). Purpose of operating budgets. Retrieved from http://www.brighthub.com/office/finance/articles/91498.aspx