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An essay on the essence of budgeting
Budgeting as a tool for proper management
An essay on the essence of budgeting
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Budget Management Analysis
This research paper is a brief discussion of budget management analysis. Budgeting is the key to financial management, and is the key to translates an organization goals or plan into money. Budgeting is a rough estimate of how much a company will need to get their work done, and provides the basis for evaluating performance, a source of motivation, coordinating business activities, a tool for management communication and instructions to employees. Without a budget an organization would be like a driver, driving blinded without instructions or any sense of direction, that’s how important a budget is to every organization and individual likewise (Clark, 2005).
There are several expense results with budget expectations such as, the expense budget, revenue budget, capital expenditure budget, cash budget and the program budget. Within this paper, the researcher will outline the basic ideas of how each budget work, and reasons as to why they are needed within an organization.
The revenue budget is based on forecasting future sales within an organization. With these forecasting future sales, it gives managers the opportunity to compare with other competitors and to effectively plan sales forecast and other relevant factors. Budgeting allows companies to make adequate estimates of how large a volume of items are needed, and how to select appropriate prices for sales. Secondly, we have the expense budget. This type of budget is found in all departments of an organization. Expense budgets deal with the primary activities undertaken by a company, to achieve their desired goals. Managers of each department should pay special attention to so-called fixed expenses that will remain relatively unchanged ...
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...or organizational planning process. Several aspects of budget management are, decisions on how money is to be allocated; influence staffing levels; purchase materials and equipment; and the continuing of new technology programs. Each department managers need to be aware of organizational priorities, the impact on services, and new development in their company. Budgeting is a potential weapon to assess company’s financial situations, and tailored its revenue and expenditures for the coming year, in a manner that will help accomplish their projections. For a budget to stay on target, it has to be monitored on a continual basis that will keep track of everyday expenses, sales achievements, analyze debts, the control of cash flow between departments, and apply any type of corrective measures to accomplish a set goal within that organization (NAF, 2006).
References
The country needs to start monitoring how the government is spending the federal budget and they need to start splitting it fairly to benefit our country. 83% of the federal budget is spent on the Big Five which are the main expenses in the budget. We have to stop spending it all on the Big Five. Our government should really pay attention to what we need most of in this country and focus on the needs. The government needs to take away 20% of the Big Five and split it to categories that need it.
Preston, AM. Cooper, DJ. Coombs, RW (1992) ‘Fabricating budgets: A study of the production of management budgeting in the NHS’, Accounting, Organisations and Society Vol 17, No 6 pp 561-93
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
Budgeting is something that many of us do in our everyday life and is something that every business should do at some level or another. Whether a company has two employees, 200,000 employees, is making $10K or $1MM, having a budget is always a good idea. A well thought out budget should positively impact the business. The goal of a budget should be to ensure that the company controls expenses in effort to get to the desired bottom line.
It is a fact that people put in time and energy to write a good résumé, are good at job interviews skills and network, that increase the chances of getting a job. In order to determine a possible career choice for the future, research has been conducted to compare and contrast two different careers. Even though a software developer and a budget analysts have similarities, they also have differences and deciding which is most suitable may be a difficult choice. A career as a software developer require hard work, but the career offers many rewards.
Participative Budgeting is the situation in which budgets are designed and set after input from subordinate managers, instead of merely being imposed. The idea behind this sort of budgeting is to assign responsibility to subordinate managers and place a form of personal ownership on the final budget. Nearly two decades of management accounting research has resulted in equivocal findings on the consequences and effects of participative budgeting (Lindquist 1995). Participative budgeting certainly has various advantages, these include the transferral of information from subordinate to superior increased job satisfaction for the subordinate, budgetary responsibility and goal congruence. Its disadvantages include budgetary slack and negative motivation, however it is the conditions in which participative budgeting takes place determines whether the budgeting process is successful. The conditions are dependent on various factors such as the level of participation, level of subordinate influence, the extent to which budgetary slack takes place, volatility, job related information, and the complexity of the budget.
Budgeting is an essential process for all businesses. By using the company’s current financial data as well as its historical data, a business should be able to forecast and plan a budget for the company’s future. A budget is defined as “a statement of monetary plans that is prepared in advance of a forthcoming period, usually one year” (Brookson 2000). This budget should align with the company’s strategic and operational plans and is the tactical implementation of the company’s business plan. Since the company’s budget is controlled by all levels of the company’s management, the company budget is usually an aggregate compilation of the departmental budgets. Budgets are used to help establish a company’s sales forecast, product pricing, as well as assist in investment planning. Budgets are also used by management for motivation and performance evaluation. A manager’s performance evaluation will usually relate to their contracted compensation plan and will be paid as a bonus in addition to their salary. These incentives are usually based on a percentage of meeting or exceeding budgeted or targeted goals which are established and controlled by management. Because of management’s control of the numbers, budgets and targeted goals are easily manipulated in order to increase the manager’s compensation. When this process occurs, it is known as “gaming” the system.
Proposed budgets are then submitted, reviewed, and adjusted to fit the universities forecasted revenue. The closing of the budgets is a curious time period where accounts can be frozen due to revenue shortcomings or units can be encouraged to make large expenditures do to surpluses. Most recently the institution has seen a deficient in the overall operational budget for the university due to declining revenue. A key problem with closing the budget during these years of revenue shortcomings
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
Line Item budgeting is the most widely used approach in many organizations due to its simplicity and its control orientation. “It is referred to as the "historical" approach because administrators and chief executives often base their expenditure requests on historical expenditure and revenue data. One important aspect of line-item budgeting is that it offers flexibility in the amount of control established over the use of resources, depending on the level of expenditure detail (e.g., fund, function, object) incorporated into the document” (National Center for Education Statistics). The advantages of line item budgeting are that it offers simplicity; “you can easily budget for each area or department of your company based on historical expenditures required in previous years. If the amount of these expenditures has been consistent over a period of years, line-item budgeting can offer a simple and reliable means of anticipating expenses for the coming year while saving time and effort in the budget preparations” (Joseph). “Another advantage of a line-item budget is that it can be easy to justify the expenditures. Proposed expenditures are based on historical needs, which makes very little to dispute among departments within the organizations. This allows companies and business owners to maintain tight budgetary control, while reducing the possibility of frivolous spending” (Joseph). There are a few dis advantages of line item budgeting; it can create a phony analysis of expenditures. Budget preparers may simply accept the current situation and continue to use the same budgeting method that worked well in previous fiscal years. “By accepting the current situation it could eliminate the opportunity to take an in-depth look at each ...
Dickinson (2004) highlights how the budgeting process has three parts which are knowledge, planning, and implementation (p.14). Budgets should always be submitted before deadlines to ensure that they are assessed by the principal. Librarians should use data and professional research in their development of a library budget. A library’s budget should also be connected to the program’s strategic plan. A budget should be itemized and purchases justified.
Performance budgeting encompasses the causal relationship among program funding and the probable results of that program and uses this information as a means to develop an actual budget. A major focal point of performance budgeting is accountability; this type of budgeting is often utilized by administrators to obtain cost efficiency and establish useful budget forecasting.
Profitability review. It is easy to lose sight of where a company is making most of its money, during the scramble of day-to-day management. A properly structured budget points out what aspects of the business produce money and which ones use it, which forces management to consider whether it should drop some parts of the business, or expand in others.
A budget is defined as the quantitative allocation of organizational resources for particular operations and plans for a forthcoming time. They usually serve as the financial blueprint for the company basing on its goals and objectives. Effective budgeting makes significant contributions towards enhancing the efficiency of execution of organizational functions, implying that improper budget can jeopardize the achievement of the goals and objectives of the organization. In addition, excellent budgeting processes should match the business needs of the organization. Also, excellent budgeting functions as a framework for organizational planning and control, whereby the organizational goals and objectives are represented quantitatively in financial
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support