Abstract:
This article investigates the complex problem of a budgeting process for a
large mining operation. Strict adherence to budget infers that financial
results align with goals. In reality, the budget is not a predetermined entity
but emerges as the sum of the enterprise’s operational plans. These are
highly interdependent, being influenced by unforeseeable events and
operational decision-making.
Limitations of stochastic simulations, normally applied in the project
environment but not in budgeting, are examined and a model enabling
their application is proposed. A better understanding of budget failure in
large mines emerges, showing that the budget should be viewed as a
probability distribution rather than a single deterministic value.
The strength of the model application lies with the combining of
stochastic simulation, probability theory, financial budgeting, and
practical scheduling to predict budget achievement, reflected as a
probability distribution. The principal finding is the interpretation of the
risk associated with, and constraints pertaining to, the budget.
The model utilizes a four-dimensional (space and time) schedule,
linking key drivers through activity-based costing to the budget. It offers a
highly expressive account of deduction regarding fund application for
budget achievement, emphasizing that ’it is better to be approximately
right than precisely wrong’.
