An operating budget translates strategy into numbers. It sets expected revenue, cost of sales, payroll, and other operating expenses, usually by month and by department. Once management or a board adopts it, it becomes the benchmark for evaluating performance.
A common mistake is editing the budget every time expectations change, which destroys its usefulness as a benchmark. A better practice is to keep the adopted budget fixed, record any formal revisions as new versions, and maintain a separate forecast for current expectations.