Preparing an Operating Budget—Goals and Assumptions

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Setting assumptions

QuoteUnless we find some way to keep our sights on tomorrow, we cannot expect to be in touch with today.Quote
–Dean Rusk

All budgeting requires making assumptions about the future. In many companies senior management will communicate key assumptions that are to be used throughout the organization—such as a 5% increase in salaries, or a 10% increase in sales volumes. In other cases the assumptions are specific to an individual department's activities.

Managers use a wide variety of data and approaches in developing assumptions, including historical trends, purchasing surveys, and industry projections. They also communicate with each other about their expectations for customer response, supplier performance, financial market fluctuation, and so on. Be sure to document all of your assumptions and keep notes of sources of information you use.

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