1. Performance based budgeting
In performance budgeting, we stress on performance measures of each unit and worker in the
organisation.
We set targets based on achievable performance and cascade them to the lowest unit in the
organisation.
Here are the major steps in performance budgeting:-
1. Start with the business expected return on equity based on industry and past
performance.
o relate cost volume profit analysis and
o Operational or Production strategies
2. Establish the Critical success factors to achieve the above goals.
3. Establish and link strategies into a strategic map
o trading strategies - Working capital
4. Establish fundamental structures using ROE Du Pont Chart.
o Fixed Asset Strategies
5. Discuss and cascade performance metrics to the lowest staff.
o HR Strategies
6. Start budgeting with sales, Purchasing, Production, HR etc and end with cash balance
using the KPIs, KRAs and targets.
o Financial Strategies and sources of funds
This budget incorporates goals, targets, strategies and measures. The HR department could
still apply the same measures for its performance appraisals.
by Hj Arriffin Mansor 012-2786282