Within a corporation we are talking about variations different industries, but no matter what kind of business you are going to want those first three years mapped out. If you have a business that requires a long lead time to get a product out such as developing software, it's going to take you a year and a half to develop that software, get it tested, and put it out in the market. So you will need a project budget for all of that. Then you would still need a department budget based on the hit count and expenditures for equipment, salaries, etc. The project could require a five year budget even though you may not start selling that product for a year and a half, but I would still work out a budget for the development and sale of the product so that you would be able to determine if it is going to return sufficient margin or profit to the business.
A lot of companies don't budget with discipline. They let people just put numbers down on paper and they give it a cursory review and then the next year they wonder why they are having problems. Very good companies tend to use the budgeting process as part of the planning discipline to think about exactly what they are going to do. If you are the manager of the department it forces you to think about how many people to hire. What kind of raises am I going to give to people? All those kinds of things come into play when you are looking out five years and your budget should show that.
Should budgets be made by group or a single person?
Typically, the small business entrepreneur has to do his own thinking. In larger organizations, you'll usually see a team of people working together on the budget process and it definitely has its advantages. Having a team of people putting together a budget has the advantage of getting everyone's creative input if you do it correctly. There are things that one individual might not think of. Another advantage of using a team approach is it helps the people understand the budget. If someone has been a part of the budget making process it helps them understand why the money is limited and why something may have been overlooked in the budget. So using the team approach to creating a budget can be valuable because of the collective creativity and by making everyone feel a part of the company's functions and planning.
When you have several divisions or departments within your organization, typically you will start with the smallest group and let them put a budget together and then the next level up. Then you add these budgets together. My experience is when you get into a large organization everybody puts a lot of stuff in their budget and it becomes more of a wish list and then the check and balance system comes in the upper levels. It forces everyone to go back and prioritize.
