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This Research report is a brief analysis on the growing importance of Budgeting in Corporate world. In this Reasearch paper we have touched advantages and disadvantages of budgeting and also did a in depth analysis on the critical appreciation of budgeting and the complex issues that lays underneath it. In this reseach paper we have also shown a monthly budget planner of how people should chalk out a plan to budget effectively and support themselves and what improvements can be undertaken to implement an effective budgeting. In this research paper we have also introduced the concept of budgetary slacka nd the principles underlying it. In brief an overall research has been carried on Budgeting.
Being an international student money management becomes one of the crucial factorsin producing an effective budget. The budget planner presented in front of us is the monthly budget planner for four months which includes all the expenses and earning incurred in four months. Being a student most of the resources comes from family in addition to the part-time job. Being a student budgeting became one of the crucial factors as we can see there are some expenses which are unavoidable such as paying rent, washing, food but seeing the budget planner its well within the permissible limit. But in order to provide a more effective implementation of the budget the expenses incurred on shopping and part time job. These are the two things that need careful attention. In regards to this the expenses of shopping needs to be lowered down otherwise it puts unnecessary burden on the limited financial resources and the cash collection resources needs to be improved such as finding more part time jobs to support living without being over dependent on family financial support. Now in case of travelling expenses a slight mistake has occurred that is a bus pass should have been that have lowered the cost to a great extent.
In brief being first time away from home and handling monetary matters for the first time I have a got an overall view of budgeting money and as time will I will try to implement an effective budgeting relating to costs and expenses.
Budgeting is an integral part of society. In todays hurry up and get it done society; everybody is trying to budget their time, meals, money. Now we should always remember just as family's budget time, money likewise our business also need to have a proper financial plan for the progress and future course of business. Out of all the business activities, Budgeting is the most important and therefore requires detailed attention. In this research we shall to try to present and intend to provide
ï‚¡ An indication and explanation on the background of budgeting and its importance and its impact on modern organisational hierarchy.
ï‚¡An overview of the advantages and disadvantages of budgeting.
ï‚¡An appreciation on the uses of budget.
ï‚¡An overview on the flip side of budgeting i.e. a critical analysis of budgeting and its negative impacts.
Let's now define the word "Budgeting" in simple management accounting terms. A budget is defined as "A Formal quantitative expression of management plans. Budget is the means of communicating the overall objectives and for blending the objectives for the entire department".
ECONOMIC IMPORTANCE OF BUDGETING
In this section we shall try to discuss and highlight some of the economic importance of budgeting:-
Control: A budget assists managers in managing and control the activities for which they are responsible. By investigating the reasons for deviations, managers may be able to identify the inefficiencies such as the purchase of inferior quality materials. When reasons for the inefficiencies have been found, appropriate control should be taken to remedy the situation.
Performance Evaluation: A manager's performance is often evaluated by measuring his or her success in meeting the budgets. The budget thus provides useful means of informing managers of how well they are performing in meeting targets they have previously helped to set.
Promote Continuous Improvement: In the budgeting stage non-value adding activities are eliminated, new and enhanced and improved processes are designed to increase the productivity.
SOCIAL AND POLITICAL IMPORTANCE OF BUDGETING
Companies realize many Social and Political benefits arising from Corporate budgets which are as under:-
Social Benefits of Budgeting
Motivation: The budget can be a useful device for influencing managerial behaviour and motivating managers to perform in line with organizational objectives. A budget provides a standard that under certain circumstances, a manager may be motivated to strive to achieve.
Co-ordination: The budget serves as a vehicle through which actions of the different parts of an organisation can be brought together and reconciled into a common plan. It is the aim of budgeting to reconcile the differences for the good of the organisation as a whole, rather for the benefit of any individual area. Budgeting compels managers to establish a strong and cohesive relationship.
Planning: It provides a means of communicating management plans throughout the organization. Budgets force managers to think about and plan for the future. In the absence of the necessity to prepare a budget too much will be wasted if an emergency situation crops up.
Political Benefits of Budgeting
Participating Budgeting: Most people will perform better and make greater attempts to achieve a goal if they have been consulted in setting the goal. The idea of participative budgeting is to involve employees throughout in an organisation in the budgetary process. Such participation can give the employees the feeling that "this is our budget" rather than all the too common feeling that "this is the budget you imposed on us".
The Budgeting Process can uncover potential bottle necks before they can occur.
The budgeting Process provides a means of allocating resources to those parts of the organisation where they can be used effectively.
It aids managers in co-ordinating their efforts, so that the objectives of the organisation as a whole harmonize with the objectives of its parts.
CONFLICTING INTERESTS OF BUDGETING
The human factors in budgeting are more important than mechanics. Top management must support a budgetary program wholeheartedly. The master budget should be a powerful aid to the most crucial decisions of top management. Often it falls short of role because its potential is misunderstood. Instead of being regarded as a management tool in many cases it is considered a necessary evil.
Management musk keep clearly in mind that the human dimension in budgeting is of key importance. It is easy for the manager to become preoccupied with the technical aspects of budget programme to the exclusion of the human aspects. Indeed, the use of budget data in a rigid and inflexible manner is the greatest single complaint of persons whose performance is being evaluated through the budget process. Management should remember that the purposes of the budget are to motivate employees and to co-ordinate efforts. Preoccupation with the pounds and pence in the budget, or being rigid and inflexible in budget administration, can only lead to the frustration of this process.
One of the most important and foremost negative sides of budgeting comes into picture when we introduce the concept of "Budgetary Slack "or padding up of budgets.
Budgetary slack has been an important focus of research devoted to the design and implementation of effective budgeting system. Budgetary slack is a condition where budgeted costs, revenues or production volumes are easier to attain than if the budgeted amount had been based on unbiased estimates of future operating conditions and results. Budgetary Slack has the potential to undermine the effectiveness of budgeting as an organisational planning and control tool. For ex budgetary slack may lead to a sub optimal distribution of resources during budget formulation, with units whose budget contains relatively more slack being allocated a greater share of resources than they merit. As budgets serve the role of performance targets, budgets that are easy to attain may not motivate managers with budget responsibility to perform to the same level as would those based on unbiased estimates. Furthermore, managers with budget responsibility are often rewarded on the basis of budget attainment and those whose budgets contain more slack may receive more rewards than they deserve.
In brief budgetary slack has been a common problem associated with Corporate Budgets and the only remedy to this problem is Fairness. Fairness is one of the most important and general characteristic of budgeting system that has the potential to reduce the propensity to create budgetary slack.
A Business plan or Budget is very much essential for the smooth functioning of the company.
It gives the organization a define path to achieve the goals and their objectives. It is a means of communicating information to the subordinates by the top management to attain the smooth working of the company. But sometimes care should be taken so that budgeting does not become a burden and becomes a vehicle of misusing powers and becomes a necessary evil.