Basics of Budgeting

BUDGETING

Definition : A budget is a quantified expression of the intentions
of the management and operates in a fashion that enables
attainment of orgainsational goals.

Elements of a Budget

1. It is a comprehensive and co-ordinated plan.

2. It is expressed in financial and physical terms.

3. It is a plan for the companys operations and resources.

4. It is a future plan for a specified period.

MAJOR OBJECTIVES OF BUDGETING


1. To state the companys goals.

2. To communicate expectations to all concerned.

3. To provide detailed plan of action for reducing
uncertainty.

4. To co-ordinate activities and efforts in such a way so
as to maximise resources.

5. Measure for controlling performance.


TYPES OF BUDGETS

Comprehensive Budgeting involves the preparation of a Master
Budget. The three important components of Master Budget are:
i) Operational / Functional Budgets
ii) Financial Budgets
iii) Capital Budgets

ESSENTIALS OF BUDGETING

1. Senior management support

2. Clear and realistic goals

3. Assignment of authority and responsibility

4. Creation of responsibility centres

5. Adaptation of accounting system

6. Full participation

7. Effective communication

8. Budget education

9. Flexibility
Budgeting As a Tool of Management Planning and Control
Communication
Coordination
Performance Evaluation
Motivation

Fundamental Concepts & Techniques Used for Budgetary Control
Cost benefit analysis including the social cost benefit analysis.
Contingency approach
Responsibility accounting based on the technique of variance
analysis
Value analysis for services, systems, cost incurrence etc.
Application of mathematical models such as PERT,
CPM,Transportation & Assignment models, L.P. & Simplex
Models, Scrutiny Analysis etc.
b Budgeting Process A Structured Approach

Formation of Multipurpose Budget Team
Definition of Vision/Mission/Objectives
Exhaustive analysis of :
- Competitive Environment
- Economic Environment
- Political Environment
- Business SWOT
- New Product Strategies
- Corporate Strategic Initiatives e.g.., New/ Restructured Alliances
at Industry and Company level
Continued

Agree on Volumes and Price Realisations

Work on related linkages (at various companies, various
business etc. viz., Manufacturing, Logistics, etc.)

First pass preparation of Income/Capital Employed
Statements

Budget Package Finalisation
Continued
Continued

Volumes and Price Realisation determination

Territywise/Productwise Volume and NRV determination (Net
Realisable Value).
Inputs on Brand Pricing,Product Positioning , Past Product
Performance Analysis, Proposed Product Lines from Marketing
and Technology Teams.
Deliberations on the above done by the Budget Team to determine
Volumes and Prices Regionwise
Continued
Continued
Zero base build up, other than Fixed Commitments
Projected Business Growth
Determination of Sales Regions/ Territories
Manpower Requirement
New Product Launches
Proposed Brand Plans
Continued
Manufacturing Budget Preparation
Capacity
Volumes
Inventory
Production Plan
Import Plan
Operations Cost
Variable
Fixed
Labour
Utilities
Standard Cost
of Goods Sold
Fixation of
RM/PM
Costs
Continued
Logistics Cost Plan
Determined by the Production Plan, Import Plan and Despatch Plan
Continued
FUNCTIONAL / OPERATIONAL BUDGETS

1. Sales budget

2. Production / Operations

3. Material Consumption

4. Purchase

5. Labour

6. Overheads

7. Marketing and Selling

8. Administration and Finance
14
Sales Budgets : sales being primary source of cash practically all
the enterprise planning regarding capital additions needed,
the production level, manpower requirements, inventories
required, material purchases etc. depend upon the sales
volumes.
Thus the usefulness of almost all the rest of the
budgets depend upon the accuracy & reliability of the sales
estimates, much of the expertise for the forecasting of it is
with Marketing Staff of the firm .
Operating Budgets : Provide the profit Budget for the Co. as a
whole as well as its segments by consolidation of the several
budgets comprising the operational budgets. Sales Budget is
one of the operating Budgets.

Following factors affect the sales budget figures
General Industry & economic conditions
a) Product Mix
b) Territories & /or other segments of business
c) Pricing decisions (in turn depends upon the demand, cost recovery &
profit margins)
d) New Products/Existing Products
e) Seasonal saleability
f) Sensitivity to technological advancement
g) Competitors Strategies
h) Types of consumers (classes /masses)
i) Govt. Policies.
j) The quantity and value of past sales
k) Market research and salesmens estimates
16
STEPS
a) Sales forecast by product
b) Product mix : taking into consideration the
manufacturing capacity and profitability of product
lines.
c) By product type; area and mix which management
believes it could sell to achieve company objectives.
d) Customer profile
Products Total
Sales Budget A B
Budgeted Sales Units (i)
Budgeted Sales Price Rs./unit
Budgeted Sales Revenue Rs.
70,000
55
38,50,000
80,000
40
32,00,000
1,50,000

70,50,000
Above illustration shows that the budget targets of both types physical & financial are required.
AN OVERVIEW OF BUDGETING PROCESS
A PLAN OF OPERATIONS
Managements Goals and Objectives
for the year
Formalised in
THE ANNUAL PROFIT PLAN
Wherein Mgmt. Specifies
THE OVERALL INCOME OBJECTIVE
Detailed in
SALES BUDGET
in Qty/Territory/
Product and Time
Period
OTHER INCOME BUDGET
Interest Income / Royalty etc.
Less
THE OVERALL COST & EXPENSE OBJECTIVE
detailed in
DISTRIBUTION EXP.
BUDGET
By Territory
ADMIN. EXP.
BUDGET
By Department
OTHER EXP.
BUDGET
Interest Exp. Etc.
PRODUCTION
BUDGET
Unites to be produced
All the below are prepared for pre
decided time period involved
[PURCHASE BUDGET]
[DIRECT LABOUR BUDGET]
[FACTORY O/H BUDGET]
The Entire PLAN OF OPERTIONS is finally
reflected in
THE FINANCIAL BUDGET Composed of
THE BUDGETED B/S
ASSETS/ LIABILITIES
OWNERS EQUITY
SUPPORTING SUB-
BUDGETS, CASH BUDGET,
INVENTORY BUDGET,
CAPITAL EXP. BUDGET,
OTHERS
TABLE SHOWING VAROUS FACETS OF A BUDGET PROGRAM
Name of
Budget
What it
shows
Prepared
by
Based upon Classification by
1) Sales Budget




2) Production
Budget


3) Production Cost
Budget

4) Materials &
Stores



5) Labour Budget


6) Production
Over Heads
Estimated sales
of products


Estimated
Quantity of
Production

Cost of
Production

Quantity &
Value of
Materials
needed for (2)


Labour Hours
and Cost
needed for (2)

Estimated Over
Heads expenses
for (2)
Sales
Manager



Production
Manager


Production
Manager

Production
Manager &
Costing
Department

Production
Manager &
Costing
Department
Production
Manager &
Costing
Department
Historical Analysis
Business Conditions
Salesman's Report
Market Analysis,
Special Conditions
Sales Budget,
Production Capacity,
Stock Requirements

Production Budget


Production Budget
and Stocks on hand


Production Budget


Production Budget
and fixed expenses
Product Territory
Customers,Salesmen,
Period



Product, Department,
Period

Product /Department,
Period & Elements of
Costs

Item wise (Major)




Category/Skill wise


Expense Wise
Department Wise
FLOW CHART OF BUDGETARY CONTROL
Specification of organisational objectives
and identification of key factors
Sales Budget
Operations
Budget
Budget for Prime
Cost & Overhead
Budget for
Sell. & Dist. Cost
Cap. Expend.
Budget
Cash
Budget
Administrative
Cash Budget
Master Budget
Acc. & Resp., Var. analysis Managerial Action
Summary of Steps in Budgetary Control

1) SWOT analysis for deciding objectives
2) Preparing a budget statement
3) Recording the actual performance
4) Periodic comparisons between the budgeted and actual performance,
& finding out the favourable and unfavourable variances
5) Finding out the causes grouping these variances
6) Basis the cause grouping these variances as controllable and
uncontrollable
7) Deciding the quantum of reward or penalty for the individual or the
teams for the variances
8) Revising the standards to suit the cyclic environmental and
uncontrollable changes in conditions.
9) Go through the steps 2 to 7 again
10) Thus the process of budgetary control has to be continuous, flexible
and unbiased
ADVANTAGES OF BUDGETING

1. Forced planning.

2. Co-ordinated operations.

3. Performance evaluation & control.

4. Effective communication.

5. Optimum resource utilisation.

6. Productivity improvement.

7. Profit mindedness.

8. Efficiency.

9. Cost control.
LIMITATION IN USING THE BUDGETING
SYSTEM

1. Management judgement.

2. Continuous adaptation.

3. Implementation.

4. Management complacency.

5. Unnecessary detailing.

6. Goal conflict.

7. Evaluation system.

8. Unrealistic targets.

PROFIT PLANNING AND CONTROL
Consider the following data:
EXHIBIT I
Sales Rs.
Sales
Variables Cost
Contribution Margin
Fixed Cost
Operating Profit
Financing Costs (@10%)
NPBT
I.T. @ 50%
NPAT
Owners Funds
Borrowed funds
Capital Employed
10,00,000
6,00,000
4,00,000
1,00,000
3,00,000
50,000
2,50,000
1,25,000
1,25,000
5,00,000
5,00,000
10,00,000
EXHIBIT II
[A] OPERATING MANAGEMENT PERFORMANCE:
(A) =(a) x (b) x(c) = 75% x 40% x 100% = 30%
= 40% (a) P/V Ratio =
Contribution Margin
Sales
= 75% (b) Margin of Safety Ratio =
Contribution Margin
Operating Profit
(c) Turnover Ratio = = 100%
Capital Employed
Sales
B] FINANCIAL MANAGEMENT PERFORMANCE:

(B) = (d) x (e) = 41% x 200% = 82%
(d) NPAT .
OPERATING PROFIT
= 41%
(e) Capital Employed
Owners Funds
= 200%
[C] OVERALL MANAGEMENT PERFORMANCE:
(A) =(B) = 30% x 82% = Approx 25%
EXHIBIT III
BREAK EVEN ANALYSIS
A 75% Margin of safety indicates if sales fell by 75%,
losses will start (as shown hereunder)
Sales (reduced by 75%) 2,50,000
Variable Costs @60% 1,50,000
Contribution Margin 1,00,000
Fixed Costs 1,00,000
PROFIT ZERO .
Thus the sales level of Rs. 2,50,000 is the NO PROFIT
NO LOSS point or the BEP which is also defined as:
It is defined in units as under:
BEP =
Fixed Costs x Sales
Unit Contribution Margin
BEP =
Fixed Costs x Sales
Sales Variable Costs
=
Fixed Cost
P V Ratio
BEP =
1,00,000 X 10,00,000
4,00,000
= 2,50,000
EXHIBIT IV
SENSITIVITY ANALYSIS FOR PROFIT PLANNING
BASIS BEP
In the existing situation Operating Profit is planed @30% on
capital employed.

With the help of BEP Analysis we can now check its sensitivity
to various factors as under:
1. What should be the sales level to increase the OP to 40% level?
BEP =
Fixed Costs + Desired Profit
PV Ratio
1,00,000 + 4,00,000
40%
=
12,50,000
=
Computation of operating profit at new sales level:
Sales 12,50,000
Variable Costs (60% of Sales) 7,50,000
Contribution Margin (40% of Sales) 5,00,000
Fixed Costs 1,00,000
Operating Profit 4,00,000
BEP =
Fixed Costs + Desired Profit
PV Ratio
1,00,000 + 4,00,000
PV Ratio
=
10,00,000 =
5,00,000
10,00,000
= PV Ratio =
50% =
Contribution Margin
Sales
=
2. What should be the variable costs level to increase the
OP to 40% level?
Computation of Operating Profit at new variable costs level:-

Sales 10,00,000
Variable Costs 5,00,000
Contribution Margin@ 50% 5,00,000
Fixed Costs 1,00,000
Operating Profit 4,00,000
BEP =
Fixed Costs + Desired Profit
PV Ratio
Fixed Cost + 4,00,000
40%
= 10,00,000 =
4,00,000 = Fixed Costs + 4,00,000
Fixed Costs = Zero
3. What should be the fixed costs level to increase the
OP to 40% level?
Computation of Operating Profit at New Fixed Costs Level:

Sales 10,00,000
Variable Costs 6,00,000
Contribution Margin 4,00,000
Fixed Costs Zero .
Operating Profit 4,00,000
VARIOUS STYLES OF BUDGETING
1. Flexible Budgeting
2. Zero Base Budgeting
3. Activity Based Costing
4. Balanced Score Card
Flexible Budgeting

It is a budget which by recognizing the difference between
fixed, semi fixed and variable costs, is designed to change in
relation to the level of activity attained. It is a budget prepared
for a range and is also known as variable budget or a sliding
scale budget

Steps in flexible budgeting:

1. Deciding the range of activity

2. Determine cost behaviour patterns

3. Selecting the activity levels to prepare budgets at those
levels

4. Prepare budget at each activity level



Zero Base Budgeting

ZBB is a method of budgeting whereby all activities are
revalued each time a budget is formulated and every item of
expenditure in the budget is fully justified. That is, ZBB
involves starting from scratch or zero

Implementation of ZBB involves the following :


1. Each activity of the organisation is identified and
called a decision package

2. Each decision package must be justified

3. If justified the minimum cost to sustain each decision
package is determined

4. Alternatives for decision packages are evaluated

5. Managers rank their decision package in order of
priority for resource allocation

6. Resources are allocated to the package
ADVANTAGES OF ZBB

1. Allocation of resources by need and benefit

2. Identifies and eliminates wastages and obsolete
operations

3. Best possible methods of performing jobs is ensured

4. Increased staff involvement which may lead to
improved motivation and greater interest in job

5. It increases communication and co-ordination within
the organisation

6. Managers become more aware of cost inputs which
help in identifying priorities

DISADVANTAGES OF ZBB


1. Substantial Cost & time involved in preparing a large
number of decision packages

2. Managers could develop fear and feel threatened by
ZBB

3. Ranking of packages could result in departmental
conflict
Measurement-Performance-Success
Activity Based Costing

In Activity based costing (ABC) costs are first traced to
activities and then to products
It is a system which focuses on activities performed to produce
products
Activities become the focal point of cost accumulation

ABC involves two primary stages:

- Tracing costs to activities

- Tracing activities to products

TRADITIONAL COSTING
Overhead
Cost
P1
P2
P3
P
R
O
D
U
C
T
Stage 1 : Overheads assigned Stage 2 : Overheads assigned to
to cost centres/ pools. products using cost
driver rate.
Process / Job 1
Process / Job 2
Process / Job 3
ACTIVITY BASED COSTING
Overhead
Cost
P
R
O
D
U
C
T
Stage 1 : Overheads assigned Stage 2 : Overheads assigned
to cost centres / pools. to products using
cost driver rate.
Activity 1
Activity 2
Activity 3
Activity 4
Activity 5
P1
P2
P3
P4
P5
COST DRIVERS IN ABC
1. Number of receiving orders
2. Number of purchase orders
3. Number of dispatch orders
4. Number of units
5. Amount of labour cost involved
6. Number of material handling man hours
7. Number of direct labour hours
8. Number of vendors/ suppliers
9. Number of set up hours
10. Number of employees
11. Number of labour transactions
45
ACTIVITY BASED MGMT [ABM]
Meaning :
It is the use of activity based costing
information to manage costs, by improving
operations and eliminating non-value-added
costs
ABC allows an understanding what activities
cause costs
ABM involves managing these activities to
reduce costs
It focuses on Work and not Worker
It is a management information tool

46
ABM TECHNIQUES
Activity Analysis

Analysis of value-added & non-value
added costs

Activity based budgeting & variance
analysis

47
ANALYSIS OF VALUE-ADDED
& NON VALUE-ADDED COSTS
The objective is to eliminate non
value Added activities

Engineering study of processes and
benchmarking are important tools
in identifying non value-added costs

48
ANALYSIS OF VALUE-
ADDED COSTS
Value-added activities are necessary
activities that cannot be eliminated without
deterioration of
product quality
performance or
perceived value
Value-added activities contribute to
customer value & satisfaction or satisfy an
organization need

49
Traditional Amt. ABC Amt.

Salaries 100.00 Clean door 40.00
Equipment 80.00 Paint door 75.00
Supplies 20.00 Inspect door 75.00
Overhead 45.00 Send door to
assembly 55.00
Total 245.00 Total 245.00
ABC vs. Traditional Costing
Example in a Car Mfg. Org.
50
CUSTOMER PROFITABILITY
ANALYSIS
Customer profitability analysis uses
activity-based costing to determine
the
activities
costs
profit
associated with serving particular
customers

LIMITATION OF FINANCIAL
MEASUREMENT
OF A BUSINESS PERFORMANCE

Less supportive of long term investments with no short term
returns

Leads to under-investment in intangible assets product and
process innovation, employee skills, customer satisfaction
where short term returns are difficult to measure

Over investment in assets that can be easily valued, such as
through mergers and acquisitions

Allows companies with very strong asset bases (such as in
natural resources, strong consumer brands) to operate
inefficiently as long as short term results are satisfactory
52
Why Is It So Difficult to Execute Strategy ?
Value is Shifting from Tangible to Intangible Assets
Percentage of market value related to ...
Intangible
Assets



Tangible
Assets

38%


62%




62%




38%


62%




38%

1982 1992 1998
53
Is Strategy very Important to Investors?
Strategy has never been more important
Business Week
Less than 10% of strategies
effectively formulated are
effectively executed

Fortune Magazine
In the majority of failures - we
estimate 70% - the real problem
Is nt (bad strategy) .. Its bad
execution

Fortune Magazine
54
60% of
organizations
dont link
strategy &
budgets
85% of
management
teams spend less
than
one hour per
month on strategy
issues
STRATEGY
Strategic
Learning Loop
BALANCED
SCORECARD
Translate Strategy to Operational terms
SUCCESS FACTORS OF
INDUSTRIAL AGE &
INFORMATION AGE
INDUSTRIAL AGE
Economies of Scale
Economies of Scope
Technology
SUCCESS FACTORS OF
INDUSTRIAL AGE &
INFORMATION AGE
INFORMATION AGE
Customer loyalty through customer
relationships
Innovative products and services
High quality customized products and
services at low cost and with short lead
time
SUCCESS FACTORS OF
INDUSTRIAL AGE &
INFORMATION AGE
INFORMATION AGE
Employee skills, motivation and
capabilities
Adaptation of Information
Technology
EVOLUTION
THE PROBLEM-

Balance Score Card
Origin
Developed by Robert Kaplan and David
Norton
Communicate Companies Objectives,
link them to strategy
Translates mission and strategy into four
perspectives
ROCE
Customer
Loyalty
On-time
delivery
Process
Cycle Time
Process
Quality
Employee
Competency
Cause and Effect Relationship

Balance Score Card

Knowledge, Skills, Systems, and Tools
Financial
Results
To Build the Strategic Capabilities..
Needed to Deliver Unique
Sets of Benefits to Customers...
To Drive Financial
Success...
And
Realize
the Vision
Equip our People...
Internal
Capabilities
Customer
Benefits
The Balance Scorecard
Perspectives
Financial
Customer
Internal business processes
Learning and growth
Vision &
Strategy
Learning &
growth
Internal
Business
process
Financial
perspective
Customers
Perspective
Balanced Scorecard Framework
BALANCED SCORECARD
GOALS & MEASURES
Goals Measures Goals Measures
Goals Measures
Goals Measures
Financial Perspectives
Learning & Growth Perspectives
Customer
Perspectives
Internal Process
Perspectives
Balanced
Scorecard
The Balance Scorecard
Perspectives
Financial
Customer
Internal business processes
Learning and growth
BALANCED SCORECARD
GOALS & MEASURES
FINANCIAL PERSPECTIVE
GOALS MEASURES
Survive Cash Flow
Succeed Sales Growth
Growth in Operational Income
Prosper ROI
EVA
BALANCED SCORECARD
GOALS & MEASURES
CUSTOMER PERSPECTIVE
GOALS MEASURES
Responsive
Supply
On time delivery
Preferred
supplier Status
Share of key customers purchases
New Product
Launch
Percentage sale from new products
Customer
Relationship
Customer partnership ventures
BALANCED SCORECARD
GOALS & MEASURES
INTERNAL PROCESS PERSPECTIVE
GOALS MEASURES
Technology
Upgradation
Technological investments
New Product
Development
R & D expenditure
Manufacturing
Excellence
Cycle-time reduction
Commercialization of R & D
Improvement in throughput
BALANCED SCORECARD
GOALS & MEASURES
INNOVATION & LEARNING PERSPECTIVE
GOALS MEASURES
Technological
Leadership
Internal technology development
Manufacturing
Improvement
Waste reduction
Time to
Market
Process improvement
Constraint removal
BALANCED SCORECARD STRATEGIC THEME
ELEMENT STRATEGY TARGET MEASURES INITIATIVES
FINANCIAL
PERSPECTIVE
REVENUE
GROWTH
CUSTOMER
PERSPECTIVE
INNOVATIVE
PRODUCTS
INTERNAL
PERSPECTIVE
WORLD CLASS
PRODUCT
DEVELOPMENT
INNOVATION
& LEARNING
PERSPECTIVE
COMPETENCY
BUILDING
Four perspectives: Are they sufficient?
Community perspective - Social responsibility
Suppliers perspective
Question : Is it vital for success of business units
strategy?
Conclusions
The Balance Score Card is basic tool
Can be modified & customized according
to an Organization's needs
An important weapon in every managers
arsenal
Learning Curves and
Non Linear Costs

The learning curve phenomena is based on the concept that
costs tend to be non linear.

It is found that the cost of doing most tasks of a repetitive
nature decrease as experience at doing these tasks accumulate.

Most experience curves, estimated on actual process, indicate
that costs decline 20 to 30 percent each time accumulated
experience doubles.

Factors that lead to this long-run decline in costs
include:


1. Labour efficiency.


2. New process and improved methods.


3. Product stadardisation.


4. Scale effect.
REVENUE MANAGEMENT - TOPLINE
Rule I Price then costs
Intuition In high demand times, increase
productive capacity. In periods of
low demand, reduce capacity and
lower headcount
Entropic
Event:
Demand fluctuations growing in
frequency and intensity
R.M.P. I Address short term fluctuations with
price, then capacity planning in long
run
Rule II Value management and marketing value based pricing
dominates cost based pricing
When customers dominate value dominates and they
do not care about your costs; you care if cost based price
exceeds customers value
Find market acceptable price point
Move from cost-based pricing to price-based costing
Intuition Set prices to cover costs and provide an acceptable
margin (Cost Based Price: CBP)
Entropic
Event:
Non-conformist customers determine the price:
Marketing provides the choices
R.M.P. II Move from CBP to PBC Monitor market for both
Revenue Management (RM)& Cost Management (CM)
for Profit Management (PM)
Rule III Sell to segmented micro-markets and not mass markets
Seek and seize revenue advantage rather than worry
about cost disadvantage
Faster-Better-Cheaper mantra
What is this customer willing to pay for this product at
this point in time
There is no average consumer, thus there can not be an
average price
Intuition Price is set to sell the greatest number of units at the
highest possible price in the mass markets
Entropic
Event:
Consumer individualism and amoeba market shatters
the myth of mass market
R.M.P.
III
Different segments demand different prices. To
maximise revenue with competition, prices must vary to
meet the price sensitivity of each market segment
Rule IV Save your product for your most valuable customers

First Come, First Served do not ensure RM or
PM
Makes relevance only when there is shortage
Customers who are paying less are those who come
First
Favor the most valuable customers
Intuition Sell products and services on a First Come, First
Served basis
Entropic
Event:
Traditional business practices do not satisfy investor
demand for revenue growth
R.M.P.
IV
Forecast and understand demand at micro-market
levels and save products for the most valuable
customers through prioritization
Rule V Decisions should be based on knowledge and not
supposition

Data Information Knowledge Profit
Adopt a RM program of appropriate size and scope
Understand window of opportunity and volatility
Understand intentional/unintentional biases and
availability of information bias while forecasting
Intuition Assumptions are and can be made about future
consumer behaviour based on intuition and personal
observation
Entropic
Event:
Non-conformist consumers are continuously
fragmenting the market and changing buying behaviour
R.M.P. V Forecast demand at the micro-market level, gain
knowledge of subtle changes in consumer behaviour
patterns and then optimize on Product/Consumer/
Supply or Demand
Rule VI Exploit and leverage each products value cycle.
Maximise value of product in micro-markets over time
Adopt a RM program of appropriate size and scope
Get as much money as possible as soon as possible
Entertainment Movie business example
Intuition Decisions on product availability and pricing are made
based on experience, gut feel, tradition or rule of thumb.
Entropic
Event:
Rapidly changing market conditions defy conventional
approaches
R.M.P. VI Maximise revenue by understanding the value cycle and
optimally timing the availability and price of the product
to each micro-market segment.
The sales force in the trench should be armed with
decision support tools built upon appropriate databases
so they can make dynamic decisions at the micro-market
level.
PRICE is VALUE ADD + COSTS
Philip Kotler has defined Customer Delivered Value as the difference
between the Total Customer Value and Total Customer Cost, as
illustrated here below.

Customer Cost
Monetary Cost
+ Time Cost
+ Energy Cost
+ Psychic Cost
Total Customer Value
Generic Value
+ Service Value
+ Personnel Value
+ Image Value
minus
Price = Customer Delivered Value
Facts Data
Analysis Information
Forecasts Knowledge
Profit Optimization Wisdom
Turn Facts into Profit!
THE CRUX OF BUDGETING