What Do You Know About An Operating Budget?

An operating budget is a financial plan that allocates resources to responsibility centers in order to support organizational plans and strategies. Three common types of operating budgets are used by the responsibility centers: profit budgets, revenue budgets, and expense budgets.

A profit budget is an operating budget that projects profits for the coming period by comparing anticipated revenues and anticipated expenses. Profit budgets typically exist for each profit center as well as for the organization as a whole. NBC News is a profit center of NBC owned by General Electric. Unable to meet expected profit levels, NBC News cut satellite and communication expenses and increased revenues by selling news programming to other countries. Mystic Seaport Museum, a not-for-profit organization located in Mystic, Connecticut, organized its retail store both as a for-profit corporation, wholly owned by the Seaport, and as a profit center, complete with a profit budget. A revenue budget is an operating budget that projects anticipated revenues for the coming period. Revenue budgets are developed by each revenue center. The Big Apple Circus, a not-for-profit circus serving the New York metropolitan area, estimates revenues as the total of ticket sales, fundraising, and grants.

An expense budget is an operating budget that projects anticipated expenses for the coming period. Expense budgets are created by each expense center. For example, Wayne Harvey, business manager of the Big Apple Circus, divided the organization into nine expense centers and he manages each using a detailed expense budget.