Planning the financial operations of a business is called budgeting. Uniform policy: The centralisation of budgetary control over all divisions and departments help in carrying out a uniform policy without the disadvantages of an authoritarian type of business organisation. Budgeting describes the overall process of preparing and using a budget. The problem therefore associated with not being convinced of the benefits of a budget, whether traditional or not, as against its cost is best addressed by the understanding of the need to plan for an organisation. As one can see from the above that zero-based budgeting has benefits as well as limitations and any company thinking about implementing this technique should carefully analyze benefits as well as a limitation and then take a decision. Integrated performance systems are deemed part of budgeting. The fact of transfer of global capital from capital-intensive industries to knowledge intensive industries may thus require greater use of control systems.
Moreover, Decentralisation makes a better co- ordination. The establishment of a budgeting process taken time. Today business of the entire world are facing tough times with the world economy in recession therefore, it is imprudent to justify increased costs for businesses due to budget planning Schaumann 2007. Firstly, distribution of burden of top executive. The fact that the stakeholders including the customers of the company care about the quality of services along with the cost of it is totally side-tracked.
This paper has demonstrated the critical role of budgeting as part of strategic management on intangibles in the survival of organizations. Moreover, I will view the advantages and disadvantages of them. But if the actual numbers diverge considerably from the expected numbers then this means that budgeting is not useful for the company and business is not going in the intended direction. In order to answer this question, one must firstly look at the reasons why budgets are used as a form of organisational control in the first place. Decentralisation helps to its executive to share his burden with others at lower levels because the authority is delegated.
This is the chief goal of budgeting, even if management does not succeed in meeting its goals as outlined in the budget - at least it is thinking about the company's competitive and financial position and how to improve it. Many organizations have begun to question the usefulness of traditional form of budgeting and are finding alternative ways for properly aligning the spending with strategy along with reduced time and resources Bogsnes 2008. They want to carry on the business according to the planned budget and therefore, overlook the opportunities available at some time in the year. Recently organizations have turned against budgeting. Individual managers can evaluate their own decisions and achievements and take suitable steps to improve their performances. However, few non-profit organizations do plan their expenses so that they can arrange for the required amount of funds through charity or grants. Co-ordination between budgets is easier to achieve.
The budgetary control develops conflicts among the line managers. The budget is the plan which intends to figure out expected operations revenue and expenses of an organization for a future time period. Intermediate budgets examine the projects the company currently is undertaking and start the programs necessary to achieve long-term objectives. All too often assumptions are made about cost behaviour which are too simplistic and hence do not reflect what actually happens. For example a shortage in production capacity of a firm during a specific month may be identified through the budgeting process. On the one hand, effective budgeting helps in monitoring and controlling the business operations while improving communication and coordination in the entire business organization, it leads to allocate scarce resources in an optimal way on the other. They even conflict on the transfer price that is decided internally between the departments.
Importance of Flexible Budget 3. Top management is often not able to take right decisions when there seems an environmental opportunity due to planned budget constraints. The time requirement can be unusually large if there is a process in place, since such a system involves an unusually large number of employees. The allocation of funds is based on specific goals and indirectly related to past performance or proposed future performance. But, in practice, such type of participation and cooperation are not easily available to the organization.
This approach is most common with financial goals, though operational goals such as reducing the product rework rate can also be added to the budget for purposes. The process as analyzed under such measure of performance still possesses the elements of assigning cost and revenues to profit centres. But there are some profit organizations as well who have realized with the passage of time that budgeting especially traditional form of budgeting is a waste of time and resources distorting decision making in fast changing environment Merchant 1981. It facilitates centralised regulation of diversified operations. Organizational control is achieved by comparing results with the budget and by holding proper individuals accountable for variances. The Trans-Pacific Strategic Economic Partnership Agreement is multi-national trade agreement among Brunei, Chile, New Zealand, and Singapore. The act of planning the different stages that occur within budgeting link activities of various departments within the business that complement one another.
The flexible budget is based on the fundamental difference in behaviour of fixed costs, variable costs and semi-variable costs. Before beginning to comment on the usefulness of corporate budget, it is important to know what is the meaning and purpose of budget for a corporation. Governments may also offer the laid off staff huge packages to avoid confrontation with labor unions, increasing the national expenditure. When employees are given a chance to participate in the budget proposals then they become motivated and more productive. But, in practice, it is not like so. This kind of budgeting is mostly used in a matured organization.
Again the arguments that would seem to deny the use of budgeting is not fully supported hence budgeting as part of planning or breaking the long-term planning is still relevant in meeting organizational objectives. Few corporations have stopped this activity at all thinking that planning budget is a waste of precious organizational resources and time which can be spent elsewhere productively. Flexible budgets complicate things by include more rules that can easily be bent or broken by someone who is struggling to stay within the boundaries. A reduction of problems is attributed to the validation members receive in groups as well as their opportunity to ventilate Northen, 1987; Shulman, 1999. As to the areas that impede the progress and functioning state of a business entity, a strong budgeting system provides an added advantage. As such, if a certain aspect of the budget is not achieved, then the. The management, to increase the overall profitability of the organization sets a target for sales team to sell 12000 units at a lower price for the year.