The budget cycle is the period of time between one budget and the next. It involves a series of steps that form a cycle.
The budget cycle involves the creation of the budget, its validation (by testing current versus expected performance), the examination of variances (actual versus budget performance), the implementation of any corrective actions, and the revision of the budget based on feedback.
The act of creating a budget quantifies how much of a given resource you have. This is important, as it helps to prioritize the allocation and management of resources. Once the budget is created, it is crucial to plan and monitor the budget. This is a continuous process in which managers must test and assess the budget against performance. Depending on the results of the budget assessment, it may be necessary for managers to address areas with unfavorable budget variances. If necessary, managers can take action in the current period to correct areas that are underperforming.