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(RISK-1587) Bracket Budgeting

Primary Author: Mr. Michael W. Curran DRMP

Audience Focus: Advanced
Application Type: Application
Venue: 2014 AACE International Annual Meeting, New Orleans, LA, USA

Abstract: A search for “capital budgeting” on AACE International’s website produced twenty-seven references. The search for “operational budgeting” produced but one result – the abstract for this paper. A keen interest in capital budgeting is expected in an organization whose membership consists of a high number of engineers and other technical individuals. However, some of those same individuals are also faced with the challenge of operational budgeting. Planning and control, the two phases of operational budgeting, receive considerable attention at all levels of management. All too often, however, the actual bottom line profit misses the target by a wide margin. The result can be personally catastrophic with the CEO paying the price for not meeting the expectations of stock analysts, the board of directors, and shareholders. The true culprit however is conventional budgeting with its inability to cope with uncertainty.

Bracket budgeting, an analytical procedure that complements conventional budgeting, overcomes this serious inadequacy. Bracket budgeting is a synergistic combination of concepts in modeling, simulation, and heuristics that gives management an unequaled understanding of the future.