Too tight budget control will not be good for project. Let say we are given 100 dollar to earn 50 dollar profit. During the process, financial monitoring alert the spending for not being over than budget. The risk for over budget will be the responsibility for project owner. Finally, project only spend 70 dollar with profit 50 dollar. In fact, project team can optimise the spending into nearly 100 dollar to earn profit more than 50 dollar. It can be said that higher risk overrun will result in higher return or not play save. Project budget will be the revenue centre and included in Capital Expenditure Budget.
It is really crucial for company to reconcile all the accounting numbers from planning phase until reporting phase. Different financial information will create different decision. Actually the budget is still available but because different information, the budget look so small. It lead operation provide lower service to produce things.
OEB and CEB is differentiated by its purpose. OEB for daily operations of team and CEB is for project development to earn revenue. The accounting treatment for both budget is different such as estimation and measurement because the functionality of budget will be different. For example car for project will be depreciated faster than car for departments used. Since the utility is also different. Thats way we have many choice of depreciation method such as straight line, unit of production, double decline, prorated or percentage of use.
Operating Expenses Budget (OEB) forecasts all of the elements of a business’ operating expenses, such as salaries, rent, depreciation, and others. Some of these expenses are fixed and some are variable (in other words, based on another metric, such as revenues). While the Operating Expenses Budget represents an estimate of future expenses, this is an accrual-based accounting figure, and it is the Disbursements for Operating Expenses Budget, a component of the Operating Expenses Budget, that drives a company’s cash flows. Department, division or team is categorised in operating expenses budget.
Capital Expenditure Budget (CEB) identify the amount of cash a company will invest in projects and long‐term assets. Although funds for expenditures may be identified and approved in total during the budget process, most companies have a separate process for approving funds for the specific items included in a capital expenditures budget. The process includes a financial evaluation to determine whether the company’s return on investment targets are met and, once the targets are known to be met, a qualitative review by a top management team. Many companies include long‐term assets, such as joint ventures, purchases of other companies, and purchases or leases of fixed assets, as well as new products, new markets, research and development, significant marketing programs, and information technology items in their capital expenditures budgets