Budgeting Properly focusing the planning process on the organizations' strengths and weaknesses will help the organization to achieve its strategic and financial goals. A critical part of this strategy includes the budgeting process. According to the text "A budget quantifies future financial plans and budgeting is the process of planning, in financial terms, the organization's activities and the results of those activities" (Marshall 2004). Some of the purposes of budgeting include helping to plan work effectively, assisting in allocating resources, and aiding in controlling resources during the budgeting period. Moreover, it is important to understand that a budget is developed to insure that management is working toward the same goal, …show more content…
"Budgeting and performance are typically overseen by the finance department, whereas planning s coordinated by strategy department. Often, the two processes aren't well integrated, resulting in strategies that are often dictated by the budget process instead of vice versa" (Gary 2003). The reason for this could be that everyone involved may be attempting to accomplish the same goals, but also trying to make sure that the outcome will be beneficial to them, such as a substantial bonus or a reward. Although many companies implement this reward theory in an effort to increase organization effectiveness, this theory does not always work. According to Aranya, "participation may create intrinsic valences due to a tendency for individuals to become "ego" involved in decisions which they have contributed, and this affects their subsequent performance" (Aranya …show more content…
The budgeting process consists of identifying, gathering, summarizing, and analyzing financial and non-financial information about an organization. Budgeting plays a compounded role in financial operations because it is a concept used for planning and controlling the organization actions to achieve its objectives. The control aspect of budgeting may be corrective or preventative. When using budgeting as a corrective control, there is much emphasis on the deviations from budget. These deviations may reveal that changes or corrections should be made to the budget. Comparing the performance with the plans, a manager can make necessary adjustments to minimize discrepancies from the projected goal. In this way, the firm not only controls operations, but also can delegate authority without the loss of control. On the other hand, the preventive aspect of budgeting encourages management to stay within the allotted financial boundaries that have been set my management. Many times this can cause animosity and hostility among managers and employees because there is a consensus that these budgets are used as control mechanisms, which sometimes invoke fear. "There's terrific pressure on everyone to make those targets;
p. 496). See also p. 495. The budget process, according to Marshall, is to "develop and communicate" how an organization's economic, industry, and organizational strategies will be effected within the budgeted time frame. People within the organization, from planners, economists, and managers, contribute to facets of the strategic budget process in order to meet organizational needs. Upper management then typically approves those budgets....
Portfolio Theory is a way of budgeting that entails organizing budget activities into portfolios and comparing portfolios with each other in order to maximize utility. By creating portfolios, budget activities are not simply evaluated on their own merits, but also by how they interact with each other. A weighted average of expected returns provides the overall return of the portfolio, while examining the covariance of the activities in the portfolio shows the overall variance or risk that the portfolio has. By understanding the constraints and following particular rules, you can arrive at the best possible portfolio which will determine the best possible budget (Khan, 2002).
Budget Development Olha Storozh Chamberlain College of Nursing NR533: Financial Management in Healthcare Organizations November, 2017 In today’s day and age of big data and statistics, organizations require effective ways of combining it in order to create an effective budget. Countless studies have shown that with an appropriate nurse staffing, patient outcomes improve. Only with proper fiscal management and responsibility can a hospital really provide the highest quality of service to its patients. This paper will review methods of creating an effective budget as well as analyzing and improving the budget sample of the St Louis Medical Center (SLMC) cardiac unit,
...as cited in Fisher et al., 2002) explain that the competition between subordinates can be increased when subordinates feel desire to outperform their co-workers in budget proposals and their actual performance. Subordinates can also decide not to hand in a budget proposal when they feel social pressure because subordinates have less motivation or ability than their co-workers (Young, 1985, as cited in Fisher et al., 2002) The social competition that arises between the subordinates will lead to optimization of the budget.
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.
The first budget item that should be decreased is military. As of the 2015 discretionary spending budget of $1.11 trillion, 54%, or $598.5 billion, is being spent on militaristic use. The reason for this budget change is because all this money being spent on the military can be used to improve other areas with a much lower budget, such as education, and medicare and health. Another budget item that should be increased is education. In 2015, 6% of $1.11 trillion, or $70 billion, was allocated for education. There have been many budget cuts to education where programs were being cut from schools. Without programs, such as music or art, students won’t get the chance to experience programs that can further add to their skill sets. In addition, without money, schools won’t be able to provide adequate education to their students, thus leading to the possibility of students doing poorly in school without the motivation.
In this era of high competition, traditional budgeting approaches doesn’t encourage innovation among the employees instead are focused on reduction in costs.(Player, 2003).
Every government entity has a primary goal, which is to be as efficient and effective as possible while expending the smallest amount of resources. In addition, the resources expended cannot be more than the resources received as revenues. The budgeting process is a tool that assists government entities in being both efficient and effective. Before a budget can be adequately prepared, you must first understand the budgeting concept and secondly be knowledgeable of budget types.
I often develop a high-level budget plan in the Initiate Stage follows by a much more detailed estimate. My experience preparing budgets includes the budget specifies costs for staff labor, materials procurement, ongoing operating costs, contingency reserve, management reserve and other direct costs. The detailed budget provides the project sponsor with a best estimate of how much the project will cost. The budget plan helps manage expectations and gives the Chain of command, County officers and other key stakeholders, a better outlook on department strategic planning. Throughout the project, I would continually forecast the budget, regularly forecast resource usage, keep the team informed and manage scope meticulously to prevent project budget shortfalls.
One of the most important steps in the capital budgeting cycle is working out if the benefits of investing large capital sums outweigh the costs of these investments. The range of methods that business organisations use can be categorised in one of two ways: traditional methods and discounted cash flow techniques.
“Budgeting is the process of allocating resources towards goals by expressing the church’s focal dream in dollars” (Bruce Powers Handbook). Ministry budgeting is based on people. The size of a church has little to do with the ministries it performs; however, planning does. This budget or planning can be used by a church of a hundred members just as easily as it can be used by a church of thousands of members or more (Powers. Pg.135).
Budget is combining your income and expenses to decide how much money you are going to spend on an item. Budget is an important step to determine your financial health and financial stability. It’s an important financial tool because it can help plan for expenses, cut cost were unneeded, save for future goals, plan for emergencies that occur inexpediently, and list what you are spending and saving.
Capital budgeting is one of the primary activities of a company. Most of the company uses capital budgeting for decision making process of selecting and evaluating long-term investment. The company have to make a right decision with respect to investment in fixed asset such as purchasing of new equipment and delivery vehicles, constructing additions to buildings and many more. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years.
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
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.