Budgeting at Aramco

Topics: Budget, Strategic management, Saudi Arabia Pages: 16 (4909 words) Published: May 30, 2011
Background about the Company
The Saudi Arabian Oil Company (Saudi Aramco) is the state-owned oil company of the Kingdom of Saudi Arabia. It ranks first among oil companies worldwide in terms of crude oil production and exports, and natural gas liquids (NGL) exports, and is among the leading producers of natural gas. Saudi Arabia has stewardship over the world's largest oil reserves — roughly one fifth of the global total — at nearly 260.1 billion barrels. Saudi Aramco is a fully integrated oil company with operations in exploration, production, refining, marketing, and international shipping.
Saudi Aramco employs more than 55,000 workers and is headquartered in Dhahran in the Eastern Province. Operations span the Kingdom, with production and product distribution facilities linking all market areas. Major export shipping terminals are located at ports on the Arabian Gulf and Red Sea, strategic refineries meet local demand for automotive and aviation products.The group prides itself not only in delivering products and services of the highest quality and standards, but also ensures the utmost integrity with everyone that we deal with.

Budgeting is used by businesses as a method of financial planning for the future. Budgets are prepared for main areas of the business – purchases, sales, production, labor, debtors, creditors, cash – and provide detailed plans of the business for the next three, six or twelve months.

A budget is a detailed plan of operations of some specific future period. It is an estimate prepared in advance of the period to which it' applies. It acts as a business barometer as it is a complete programmer of activities of the business for the period covered. It's also defined as a financial and/ or quantitative statement, prepared prior for a defined period of time, of the policy to pursued during that period for the purpose of attaining a given objective.

Budgetary control
The setting up of budgets that begin with the establishment of organizational objectives. Budgetary control is also concerned with the periodic comparison of actual results and budgets so that organizational objectives can best be achieved.

Advantages of Budgeting
* Question all aspects of their work such as methods, technology and people. * Appreciate the links between history, the present and the future. * Quantify their objectives and targets.

* Appreciate the links between their own budget and budgets of other managers. * Communicate with other levels of management.
* Use the principle of responsibility accounting.
* Use the principle of management by exception.
The budget assists planning
By formalizing objectives through a budget, a business can ensure that its plans are achievable. It will be able to decide what is needed to produce the output of goods and services, and to make sure that everything will be available at the right time.

The budget communicates and co-ordinates
Because a budget is agreed by the business, all the relevant managers and staff will be working towards the same end. When the budget is being set, any anticipated problems should be resolved and any areas of potential confusion clarified. All departments should be in a position to play their part in achieving the overall goals. The budget helps with decision-making

By planning ahead through budgets, a business can make decisions on how much output – in the form of goods or services – can be achieved. At the same time, the cost of the output can be planned and changes can be made where appropriate. The budget can be used to monitor and control

An important reason for producing a budget is that management is able to use budgetary control to monitor and compare the actual results (see diagram below). This is so that action can be taken to...
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