Budgets are essential to a company’s financial management success because they keep finances organized and limit corporate spending activities. Since budgeting is a company-wide process, companies have specific policies and procedures when it comes to departments setting their own financial parameters and requesting additional funding.
Budgets are built based on company or departmental goals. If a particular department has a staffing or strategic goal in mind, they develop their budget and provide justification for the amount requested. When setting goals managers are expected to keep expenses to a minimum so that their budgets are not extravagant.
Some companies set their budgets annually, while other companies rework budgets on a quarterly basis. The company’s board of directors determine how frequently the company’s budgets will be reviewed. According to an August 2008 article in "Entrepreneur," external circumstances, such as changes in the economy, impact whether budgets must be reviewed and renegotiated more or less frequently.
A company’s board of directors, along with the executive management team, must approve the budget before any money can be released for the upcoming term. Board members have the authority to change or negotiate budgets that they do not agree with. Department managers must understand that they are not always guaranteed to receive what they ask for.