B. Planning, Budgeting, and Forecasting

Strategic planning
a. Analysis of external and internal factors affecting strategy
b. Long-term mission and goals
c. Alignment of tactics with long-term strategic goals
d. Strategic planning models and analytical techniques
e. Characteristics of successful strategic planning process
Budgeting concepts
a. Operations and performance goals
b. Characteristics of a successful budget process
c. Resource allocation
d. Other budgeting concepts
Forecasting techniques
a. Regression analysis
b. Learning curve analysis
c. Expected value
Budgeting methodologies
a. Annual business plans (master budgets)
b. Project budgeting
c. Activity-based budgeting
d. Zero-based budgeting
e. Continuous (rolling) budgets

Part 1 – Section B.1. Strategic planning

The candidate should be able to:

a. discuss how strategic planning determines the path an organization chooses for attaining its long-term goals, vision, and mission, and distinguish between vision and mission
b. identify the time frame appropriate for a strategic plan
c. identify the external factors that should be analyzed during the strategic planning process and understand how this analysis leads to recognition of organizational opportunities, limitations, and threats
d. identify the internal factors that should be analyzed during the strategic planning process and explain how this analysis leads to recognition of organizational strengths, weaknesses, and competitive advantages
e. demonstrate an understanding of how an organization’s mission leads to the formulation of long-term business objectives, such as business diversification, the addition or deletion of product lines, or the penetration of new markets
f. explain why short-term objectives, tactics for achieving these objectives, and operational planning (master budget) must be congruent with the strategic plan and contribute to the achievement of long-term strategic goals
g. identify the characteristics of successful strategic plans
h. describe Porter’s generic strategies, including cost leadership, differentiation, and focus
i. demonstrate an understanding of the following planning tools and techniques: SWOT analysis, Porter’s Five forces, situational analysis, PEST analysis, scenario planning, competitive analysis, contingency planning, and the BCG Growth-Share Matrix

Part 1 – Section B.2. Budgeting concepts

The candidate should be able to:

a. describe the role that budgeting plays in the overall planning and performance evaluation process of an organization
b. explain the interrelationships between economic conditions, industry situation, and an organization’s plans and budgets
c. identify the role that budgeting plays in formulating short-term objectives and in planning and controlling operations to meet those objectives
d. demonstrate an understanding of the role that budgets play in measuring performance against established goals
e. identify the characteristics that define successful budgeting processes
f. explain how the budgeting process facilitates communication among organizational units and enhances coordination of organizational activities
g. describe the concept of a controllable cost as it relates to both budgeting and performance evaluation
h. explain how the efficient allocation of organizational resources is planned during the budgeting process
i. identify the appropriate time frame for various types of budgets
j. identify who should participate in the budgeting process for optimum success
k. describe the role of top management in successful budgeting
l. demonstrate an understanding of the use of cost standards in budgeting
m. differentiate between ideal (theoretical) standards and currently attainable (practical) standards
n. differentiate between authoritative standards and participative standards
o. identify the steps to be taken in developing standards for both direct material and direct labor
p. demonstrate an understanding of the techniques that are used to develop standards, such as activity analysis and the use of historical data
q. discuss the importance of a policy that allows budget revisions that accommodate the impact of significant changes in budget assumptions
r. explain the role of budgets in monitoring and controlling expenditures to meet strategic objectives
s. define budgetary slack and discuss its impact on goal congruence

Part 1 – Section B.3. Forecasting techniques

The candidate should be able to:

a. demonstrate an understanding of a simple regression equation
b. define a multiple regression equation
c. calculate the result of a simple regression equation
d. demonstrate an understanding of learning curve analysis
e. calculate the results under a cumulative average-time learning model
f. identify the benefits and shortcomings of regression analysis and learning curve analysis
g. calculate the expected value of random variables
h. identify the benefits and shortcomings of the expected value technique
i. use probability values to estimate future cash flows

Part 1 – Section B.4. Budget methodologies

For each of the budget systems identified (annual/master budgets, project budgeting, activity-based budgeting, zero-based budgeting, continuous (rolling) budgets, and flexible budgeting), the candidate should be able to:

a. define its purpose, appropriate use, and time frame
b. identify the budget components and explain the interrelationships among the components
c. demonstrate an understanding of how the budget is developed
d. compare the benefits and limitations of the budget system
e. evaluate a business situation and recommend an appropriate budget solution
f. prepare budgets on the basis of information presented
g. calculate the impact of incremental changes to budgets

Part 1 – Section B.5. Annual profit plan and supporting schedules

The candidate should be able to:

a. explain the role of the sales budget in the development of an annual profit plan
b. identify the factors that should be considered when preparing a sales forecast
c. identify the components of a sales budget and prepare a sales budget
d. explain the relationship between the sales budget and the production budget
e. identify the role that inventory levels play in the preparation of a production budget and define other factors that should be considered when preparing a production budget
f. prepare a production budget
g. demonstrate an understanding of the relationship between the direct materials budget, the direct labor budget, and the production budget
h. explain how inventory levels and procurement policies affect the direct materials budget
i. prepare a direct materials budget and a direct labor budget based on relevant information and evaluate the feasibility of achieving production goals on the basis of these budgets
j. demonstrate an understanding of the relationship between the overhead budget and the production budget
k. separate costs into their fixed and variable components
l. prepare an overhead budget
m. identify the components of a cost of goods sold budget and prepare a cost of goods sold budget
n. demonstrate an understanding of contribution margin per unit and total contribution margin, identify the appropriate use of these concepts, and calculate both unit and total contribution margin
o. identify the components of a selling and administrative expense budget
p. explain how specific components of the selling and administrative expense budget may affect the contribution margin
q. prepare an operational (operating) budget
r. prepare a capital expenditure budget
s. demonstrate an understanding of the relationship between the capital expenditure budget, the cash budget, and the pro forma financial statements
t. define the purposes of a cash budget and describe the relationship between the cash budget and all other budgets
u. demonstrate an understanding of the relationship between credit policies and purchasing (payables) policies and the cash budget
v. prepare a cash budget

Part 1 – Section B.6. Top-level planning and analysis

The candidate should be able to:

a. define the purpose of a pro forma income statement, a pro forma balance sheet, and a pro forma statement of cash flows, and demonstrate an understanding of the relationship among these statements and all other budgets
b. prepare pro forma income statements based on several revenue and cost assumptions
c. evaluate whether a company has achieved strategic objectives based on pro forma income statements
d. use financial projections to prepare a pro forma balance sheet and a pro forma statement of cash flows
e. identify the factors required to prepare medium- and long-term cash forecasts
f. use financial projections to determine required outside financing and dividend policy