Advantages And Disadvantages Of Budgeting

By managing the budget the organization will be better prepared for the financial forecasts, which are the company’s future expenses. Some strategies and tools that will assist with managing the budget are zero based, activity based, performance based, cost

Incremental budgeting is a type of budgeting that adds a certain amount of capital to a previous period's budget in order to allow for slight increases.

Budgetary control system is an essential management tool that communicates management’s plans throughout the organization, allocates resources, and coordinates activities. Besides, unwise system can have the negative effects on the performance of the company. Thus, it is vital to develop a compatible budgeting system which can assist managers in fulfilling long-term goals and strategic plans.

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).

In outlining a budget there are two phases that must be determined to create a budget, an operating phase and a financial phase. “Developing a new operating budget starts with examining budgets from previous years and identifying what components are going to change, by how much and if any new components need to be added or existing ones reduced or cut” (Budget Challenges, 2012). In the first phase of the budget it needs to be determined how much money is going to be needed to operate the day to day activities of the business.

A budget is an instrument used to help managers ensure that the resources used effectively and proficiently toward the goals of an organization. A budget projection can be made on a yearly base depending on previous year or existing one. They can further be broken down quarterly or monthly depending on it use. Generating a budget is complex undertaking, and for a budget to be effective the organization ought to follow it strictly. However, no matter how closely a business follows their guidelines there will always be some form of variances. The organization should expect a few variances and be able to work these discrepancies in any budget

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.

A budget is a financial document that contains a detailed plan in writing (usually in monetary form) expressing the expected financial implications of the various management strategies for attaining the organization’s primary goals and objectives in the coming financial period (Clowes, & Scriven, 2015). A budget is a very important tool for any given organization. By enabling the organization to create a spending plan for its finances, the budget ensures that the company will be able to meet all its important obligations. Given the importance of the budget, significant effort and

Budgeting is the systematic method of allocating financial, physical, and human resources to achieve an organization’s strategic goals. Budgets are utilized by for-profit and non-profit organizations to monitor the progress towards the goals, assist in the control of spending, and help predict cash flow for the organization.

A budget is an itemized summary of what a business’s income and expenses will be for a given period of time, while allowing the business during this period to determine if they are able purchases items based on their budget. It’s an important tool that is used by management to help prioritize their spending and manage their money and allow them to identify any wasteful expenditure, respond quickly to any financial changes and to achieve their

A budget, as defined by Hilton (2009 pg 348), is a detailed plan, expressed in quantitative terms that specifies how resources will be acquired and used during a specific period of time. A budget is a financial document utilized to project future income and expenses. A budget is based on how much you make in income and what your monthly expenses are. Budgets evaluate performances while the plan is what is going to happen or refine what you want to accomplish by thinking ahead. The purpose of having a budget is it improves efficiency, assigns responsibility, provides direction, and helps businesses plans and control finances. Managers use the budget as a

Most entities and organization create budgets as a guide for controlling its spending, prediction of profit, and it expenditure as they progress toward a set goal. Budget involves pulling resources together to achieve a specific goal. According to Gapenski (2006), budgeting is an offshoot in a planning process. A basic managerial accounting tool use in holding planning and control functions together is referred to as set of budgets (p. 255). One major setback manager or budget developer encounter is trying to design a future, a process that cannot be created with the precision just right. This article highlights some financial management

Budget is time-consuming, especially if it involves a poorly managed company. The budget only pays attention to the quantitative aspect of business while neglecting the qualitative aspects. It does not consider the quality of services or goods and therefore inconsiderate of customers’ satisfaction. Another disadvantage of a budget is that it is inaccurate. A firm rarely “makes budget.” The hope is that the business activity will be close to the budget, but it could be off considerably and lead to bad hiring, spending and production decisions. This is because budget preparation is based on assumptions and thereby changes in the business environment could lead to unachievable

The 20’s century saw the use of budget involve due to a change in the environment. Indeed the control of output used to be obtained by the dissemination of tasks and so traditional budgets were very much highlighted, with a significant top-down influence. As an example of the importance of budget in the 1970’s IBM had about 3,000 people involved in their budgetary process. During the same period, the oil crisis brought concerns about rising in costs and led to the introduction of zero-based budgeting (ZBB), which can lower cost by avoiding blanket increases or decreases to a prior period’s budget. The increase in business uncertainties was in discrepancy with the stifling effect of fixed plans, promoting the use of rolling budgets. The 1990’s saw the growing influence of shareholders and steered the focus on a budget that included a wider view of organisation results, answering the investment community for quarterly updates on results and expectations (Bill Ryan, 2005). Budgets then started being used as a communication tool between the financial community and the organisation, allowing the corporation to be integrated in the capital market. Moreover companies started using flexible budgets rather than static budgets as nowadays various levels of activities can be observed in most organisations. The use of flexible budgets then enables firms to be consistent with their new environment and the market.

Budget and budgetary control practices are undeniably indispensable as organizations routinely go about their business activities and operations. These organizations are constantly on the alert on how actual levels of performance agree with planned or budgeted performance. A budget expresses a plan in monetary terms. It is prepared and approved prior to a particular budgeted period and explicitly may show the income, expenditure and the capital to be employed by organizations in achieving their goals and objectives.