a) Distinguish between short-term and long-term planning

Strategic or corporate planning is concerned with the objectives of a business and the long-term plans to achieve these objectives. Strategic planning covers periods greater than one year. Strategic planning involves setting business objectives, the identification evolution and selection of strategies to achieve the objectives. The level of detail in strategic plans is not as great as in short-term plans. Effectively, short-term plans flesh out the long-term plans of a business and cover the immediate period and would be for one year. Short-term planning involves preparing projections for the next twelve months. These projections are generally quite detailed and are expected to be reasonably accurate, as the planning period is quite short. Short-term plans are effectively long-term plans broken into smaller time periods and are essential in terms of appraising short-term performance and acting as a benchmark for performance evaluation. The annual budget is generally divided into twelve monthly or thirteen four-weekly time periods.

b) What is the master budget and describe its role in relation to other budgets

The master budget comprises of a set of projected financial statements or budgets that portray the predicted financial outcomes of pursuing the selected strategies for the year in question. The projected financial statements will normally comprise of:

• A projected profit and loss account.
• A projected balance sheet.
• A projected cash budget.

The master budget presents a financial picture of what the company wants and reasonably expects to achieve in the time period allotted, based on certain assumptions regarding economic and political conditions.