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Budgeting process, is it really necessary?

Studienarbeit 2012 21 Seiten

BWL - Rechnungswesen, Bilanzierung, Steuern

Leseprobe

Table of content

Executive summary

1. Introduction
1.1. What is the Budgeting?
1.2. Origin of budgeting and the origin of criticising its process

2. Main body
2.1. Evaluation critically the statement ‘an excellent budget process is the ability to convert objectives and goals into data’
2.1.1. Supportive reasons
2.1.2. Contradictory reasons
2.2. Evaluate critically the statement ‘finding the resources to implement the budget calls for extensive use of human resources and involves correct perceptions of individual roles and communication play an important role’
2.2.1. Advocating
2.2.2. Criticising
2.3. Describing the differences between the communication flows when the budgeting process is imposed or participatory

3. Conclusion

References

Executive summary

The strategic planning is the long-term plan of organisations and budget is the short-term plan that contains more detail regarding to business operations. The budget is like a blueprint for entire business which is prepared for the next year. So it is designed by estimating and forecasting future trends in market. Budget is used to evaluate actual performance of a company or a section of company with desirable performance that this desirable performance is based on forecasting markets. Therefore, an excellent budget process should have this ability to convert objectives and desirable goals (it means future estimated outcomes) into data.

This statement could be wrong in some situations. Various scholars provide opposites arguments regarding to this statement. Beneath the main body these two arguments against and in favour of this above statement are discussed abundantly.

One of the main success elements of budget is finding the right resource to implement the budget calls for extensive use of human resources. But sometimes even with the appropriate and well-designed budget it is not possible to reach budget’s targets because of human resource or their misunderstanding of budget. Organisations try to have correct congruence perceptions within their employees but some researches demonstrate different outcomes (perception) may be exhibited when the individuals have not parallel objectives compare to organisational goals. These two main issues of budgeting success factors are mentioned in this writing; besides, one of the main differences between imposed budgeting and participatory budgeting is mentioned in this study. This difference is regarding to the way of communication.

1. Introduction

1.1. What is the Budgeting?

Two kinds of plan are designed for organisations, long-term and short-term plan. These two types of plans are complementary for each others. Long term planning is designed as a systematic process to lead and control future activities towards objectives for period extending beyond one year. And, short-term planning, is known as budgeting, formulates, aligns and allocates the physical, human and financial resources that are available at the moment to current situation of business environment (Liang and Wang, 2010).

The Chartered Institute of Management Accountants (CIMA) define budget as:

“[Budget is] a quantitative expression of a plan for a defined period of time. It may include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows” (Ross, 2008 p3).

Organisations allocate funds to achieve their outcomes by budgeting process. Sometimes a budget may extend more than one year as a prediction regarding to the future of market. This kind of budget is more similar to strategic planning with some sort of budgeting aspects with less details compare to one year budget. Nowadays, this kind of naming is obsolete within organisations and they called it operational planning and reserve the budget for specifically short-term planning for one year activities. Therefore, this short-term planning, budget, should contain more details (Shrader, Mulford and Blackburn, 1989; Analoui and Karami, 2003).

For evaluating critically this sentence that “an excellent budget process has the ability to convert objectives and goals into data” is needed to understand the budgeting process and the process of creating budgeting. Recognising the budgeting process also aims to evaluate other aspects of budgeting such as communication role, human resource involvement and human resource perception.

Budgeting process:

Drury (2006) mention six fundamental functions of budgeting which are planning, coordinating, communicating, motivating, controlling and evaluating. Many scholars agree that these functions should be achieved to argue that an organisation has a successful budgeting system. For example, planning, which is the first function, is a determination of the overall or strategic goals and strategic business objectives that should be translated into specific measures. Shim and Siegel (2005) declare six steps in order to achieve success in budgeting process which they are:

1. Setting objectives
2. Analyzing available resources
3. Negotiating to estimate budget components
4. Coordinating and reviewing components
5. Obtaining final approval
6. Distributing the approved budget

Success factor of budgeting process:

So, one of the success factor of budgeting process is based on accuracy in translating objective into financial measures. The second success factor is availability of resources that comprises of manifold resources such as physical assets of human resources. The other success factors are communication and cooperation of all organisational levels regarding to budgetary process, controlling and; finally, informing the subordinates regarding the approved budget.

1.2. Origin of budgeting and the origin of criticising its process

Budgeting has been introduced in the nineteenth century in England and was spread throughout the business and governmental policies around the globe. Dozens of books and journals have been published since 1930. On this year, the first international conference on Budgetary Control was held in Geneva, Switzerland. Since the inception budgetary control system and initialisations, research scholars and practitioners from various domain of social science have been contributing criticism about budgeting process and raised several fundamental questions such as the need it (Barrett and Jelly, 2007; Cokins, 2008; Hansen et al, 2003; Keogh, 2008; Thomson, 2007; Williams, 2008; King, 2009).

Several of the criticisms raised by the above critics were focused on processes of budgetary system. Some of those criticisms are regarding to those six steps of budgeting process which are mentioned above. Both research scholars and experts highlight that manifold conflicts will emerge within the budgeting process’s steps at the implementation stages is started just because of themselves (Leitch, 2003; Liang and Wang, 2010).

Advocators of budgeting process endeavour to complete the methods and accurate them. Various methods were designed to support the first step of process for setting clear accurate achievable objectives. These endeavours cause forecasting methods are evolved to convert objectives of an organisation into number although some sorts of disputes still exist. Another important disagreement of budgeting is based on human resource conception and their involvement that these fundamental issues are discussed on the main body title.

2. Main body

2.1. Evaluation Critically the statement ‘an excellent budget process is the ability to convert objectives and goals into data’

Short-term plan, or budget, should contain specific details regarding to the employees diurnal jobs in order to align their digressions from desirable budget and goal. And to achieve these comprehensive diurnal activities, the organisations should able to convert future trend in market into numbers. So, Budget is a financial plan to control future results of organisation such as profits and sales. The budget is usually demonstrated by various quantitative measures such as dollars, hours and units to control various departments of organisations to achieve the final goal (profit).

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Details

Seiten
21
Jahr
2012
ISBN (eBook)
9783656110378
ISBN (Buch)
9783656110675
Dateigröße
600 KB
Sprache
Englisch
Katalognummer
v187174
Institution / Hochschule
University of Derby
Note
Schlagworte
Budgeting Process Beyond Budgeting Goal Setting

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Titel: Budgeting process, is it really necessary?