Forecasts and Budgets 195The Profit Plan
Though the term profit plan is sometimes used to refer to a master budget, it
probably best descr ibes the operating part of the master budget of a for-
profit firm. It can be argued, however, that the entire master budget of such
firms is the total profit plan for the firm. The operating budget shows details
of budgeted net income, but the financial budgets, such as cash and capital
expenditure budgets, are also an integral part of the overall profit planning of
the firm.
Naturally, the term profit plan is not suitable for public-sector firms. Or-
ganizations 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 private-
sector organizations, we use master budget predominantly. However, be aware
ofprofit plan because it is used occasionally in practice.
THE BUDGET REVIEW PROCESS
The budget plan determines the allocation of resources within the organiza-
tion. Typically, the resources available are less than the demand for the re-
sources. Consequently, there should be some systematic process for evaluating
all proposals relating to the budget. The process of systematically evaluating
budget 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) make the budgeting deci-
sions. For example, production-line supervisors may determine resource alloca-
tions within their department. 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 sin-
gle firm, different budget review processes may be used in various segments of
the firm, and at various levels of responsibility. However, the basic review pro-
cess 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 her or his 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 tremen-
dous management effort cannot obtain desired results.