According to Ostergren and Stensaker (2007), budgets and budgetary control have long been the dominating instruments for management control, and a significant tool for the company to retain its’ competitive advantage in this demanding economy. The aim of this essay is to study how budgetary control is concerned primarily with the control of performance and how it has taken on a greater importance especially as a more integrative control mechanism for the organisation.
Budgets are defined as a quantitative expression of a plan prepared for sales and production, or for financial resources such as cash, capital expenditure and others (Lucey, 2003). There are three methods to approach budgeting: Traditional Incremental Budgeting, Zero-based Budgeting and Activity-based Budgeting (Upchurch, 2002).
Table 1: Differences between Incremental, Zero-based and Activity-based budgeting
(Wetherbe, 1976)
As stated by Brewer (2002), for a company to attain high levels of performance, the managers should always know “What is Happening” and “What Should Be Happening” which are both deduced through the budget plan - which is defined as a financial plan prepared in advance for a business, and are the central to the process of planning and control respectively.
“What is Happening” refers to planning in an organisation. Goals of an organisation may be stated in terms of profit, return on investment, market share or product diversification which is established from the organisation’s annual planning process. A plan specifies the direction which the management team is heading towards, including making forecasts and assumptions about the external environment. The external environment includes factors such as consumer spending, interest rates, actio...
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...sonality and power are used to impose control over the budget rather than a formal participative budgeting system, where negotiation is the norm. Such unwillingness to allow participation in the budgeting process seems to have negative connotations. The employees will not have the motivation or initiative to perform in a way to be of value to the company . It might prove difficult also to retain staff on its payroll . This could lead to higher costs in hiring and re-training new staff. High turnovers could further demoralise existing employees when they see too many staff leaving, as they would be the ones who have to pick up the slack and devote time and energy to train new entrants (Pilkington & Crowther, 2007).
Setting a budget is a delicate process. Too high or too low a budget can have serious ramifications. Budgetary slack occurs if targets are set too low.
Budgeting is a familiar term to most American families. Dictionary.com defines budgeting as an estimate, often itemized, of expected income and expense for a given period in the future. In order to avoid debt, bankruptcy, or overspending it is common to create a spreadsheet of some sort tracking your spending and income. On a grander scheme, the Unites States has to budget as well.
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
Budgets are the financial requirements and consequences of plans. Budgets are made with specific goals in mind. Budgets can be used to lower living expenses, increase savings, or to save for a purpose such as: education or retirement. Budgeting is a process that involves these actions: defining goals, gathering information, forming expectations, reconciling goals and data, monitoring goals and variances, adjusting budgets, and redefining goals.
Budgetary control is a tool used by the management of the company for both planning and controlling. Planning is crucial in this case, which has to consider all strength and weakness so that company can achieve its success as per the plan. In case of Ferguson & Son manufacturing company the budgeted values are compared directly with the actual values. The company has the practice to make comparison with the fixed budgeted values with the actual budgets without any flexibility that is there is no consideration about the current scenario. As mentioned earlier, a planning process involves an in-depth analysis about all the circumstances so that the company can achieve them. In this case, the inflexibility present in the fixed budget added more trouble to the employee’s of the company. This behavior resulted in employees to consider that the company is concerned only about money and not about the quantity of goods that were produced by them. Generally, inflexible budget add more pressure to the employees as the company will be concerned only about the profitability at any point.
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.
These words are parallel to the generic principles of budgeting. It calls for a need to forecast the resources required to deliver the services offered by an organization. A budget is a financial plan that includes estimated expenses as well as income for a period of time. In particular, a nursing budget is a systematic plan that is informed by nurse administrators of nursing revenues and expenses. It projects how revenues will meet expenses and projects a return on equity or profit.
In the journal article, What If Dinah Was Raped?, by Lyn Bechtel, she gives her opinion on whether or not Dinah was raped and her explanation why. She claims that it has a lot to do with whether or not the intercourse was for a reason, like continuing family lines. Sexual actions result in power and strength that is shown throughout the family connections. Therefore, the more sex that occurred, the stronger bond there was in their group-orientation.
In conclusion, the advantages of participative budgeting include an increase and transferral of information, an increase in subordinate morale and job satisfaction, the development of negotiation skills and goal congruence. However these advantages only come into full affect when particular conditions are present, without these conditions it may turn into a disadvantage through budgetary slack, low job satisfaction and responsibility.
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).
This paper will synthesize the findings from the Cassar and Gibson (2008) study. Analogies and experiences will also be used to discuss and analyze the study findings. In addition, the relevance of these findings to the relationship between forecasting methods and budget development will also be discussed. Finally, this paper will also make recommendations on how organizations may address the strategic relationship between planning and performance.
A budget is a guide for a nonprofit organization and it helps to plan the future goals and the current financial position of the organization. It is important to check the financials and budget review periodically because it is necessary to determine the actual going out and coming in of money. 4. KiDZ ROCK OUT Long-Term Goals: 4.1 Long-Term
As time goes on, you will find that your original budget has some slaws. Some areas of budget planning might be overestimated, and some areas might be underestimated. Some of the flaws in budget making, for instance, are unemployment because if a person gets unemployed he has to have a strict budget to follow. For example making home food and not going out because that will result him in debt. Some of the other flaws are increase in rent, increase in car insurance because of accidents occurring, credit card payments, groceries, and eating out with friends. All of these flaws can cause a person to be more in debt and cau...
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
A disadvantage of this type of budgeting is that it leaves room for erroneous reporting by departmental heads to ensure their programs are not cut due to lack of performance output. Performance budgeting can become a burden for substantial budgeting endeavors as funding requirements for various agencies can vary