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
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’.