Question

Agree/Disagree and Why?

Operational budgets are budgets that look at future revenues and projections. They are typically done at the beginning of a year (annual or fiscal) and they outline the budget for monies needed based on the expected activity levels. The use of an operational budget is something that I have become accustom to from my time in the military and also as a federal contractor. While I am not the budget analyst creating the budget, I have become very familiar with how they work. Essentially, we look at are past historical data to come create our baseline of equipment and consumables we will need. We then look at expected increases in areas and/or growth so that we are level throughout the year. There is usually a small pot of money for incidentals, but the importance of forecasting the entire fiscal year is of the utmost importance due to our ordering and budget constraints.

A Capital budget is much different from an operational budget in the sense that a capital budget looks at future projections (revenue and expenses) for large projects. This can be exampled by a firm looking as long-term investments like new machinery, buildings, and research and development. It works as an appraisal of sorts to determine if these investments are worth the time and money to be invested.

In Linear Programming we use it an optimization problem using a mathematical model, with requirements that are linear in relationship, that finds the best possible outcome (profits or losses). In a linear programming model, we can have fractional solutions, however, integer linear programming deals in absolute optimization where fractional values are not feasible. I like to think of units produce or a good. We can not produce fractional cars, houses, or machines. When performing an ILP problem, all variables are restricted by an integer (whole number).

Answer 1

I agree with the author that operational budgets are formulated in order to take into consideration future revenues and other financial projections. Operational budgets consider past working capital cycles, sales, purcahses, other expenses etc of the organization and also any increase or growth in any specific areas that the organization has experienced in order to make future projections about operational budgets. Hence it is very important to consider past operational performance of an organization in order to make future projections. Also it differs from the capital budget of an organization since capital budget deals with project performance rather than operational performance.