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Handbook of Budgeting, 6th Edition by William R. Lalli

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CHAPTER THIRTY-ONE

Bracket Budgeting

Michael W. Curran

Decision Sciences Corporation

INTRODUCTION

Annual budgeting is a way of life in most organization. Planning and control, the two phases of operational budgeting, receive considerable attention at all levels of management. All too often, however, the actual profit differs significantly from the target. This difference is generally attributed to the vagaries of modern business, and rightly so. But this is simply an admission that conventional budgeting is often incapable of coping with business realities.

The reason for this deficiency is fundamental. With conventional budgeting, the forecast of each element in the budget must ultimately be represented as a single number, even though management may know beforehand that thousands of other values are possible. If there are more than a few such elements, the number of possible ways in which they can combine and their effects cascade to the bottom line defies analysis. Bracket budgeting, an analytical procedure that complements conventional budgeting techniques, overcomes this serious inadequacy. This relatively new methodology is a synergistic combination of basic concepts in modeling, simulation, and heuristics that gives management an unequaled understanding of the future.

It must be emphasized that the personal computer plays an integral and indispensable role in bracket budgeting. This means, of course, that it must be programmed to perform the myriad calculations required. ...

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