“A plan express in money. It is prepared prior to budget period and may show income, expenditure and capital to be employed. Maybe drawn up showing incremental effects on former budgeted or actual figures.
Budget Period- the Company may have a long-term plan of where it wants to go or its goals maybe in the next 3- 5 years. The budget is detail of how it is going to get there. It is normally be for one year, broken down into 12 monthly periods or 13 four weekly periods. Continues or rolling budget is where budget are revived and prepared on a regular basis. Existing budgets are updated and new quarter is added.
Principal budget- it is important to identify all since budget will depend on it. It is normally sales.
Benefits of budgeting- These budgets will not be achieved without working at the budgeting process. Budgeting forces planning and coordination. It provides an opportunity for everyone in the organization to contribute to the overall plan. Budgeting process clarifies the responsibilities within the organization and enables responsibility to be assigned for management by exception.
Budgeting enable to involve all levels of management, there should both be vertical and functional communication in the organization.
Budget set up a framework for control were management can act on deviations from the budgeted plan. Also it can provide very good motivational influences on the staff. The establishment of targets enables management to have specific goals which should encourage positive motivation.
The common goal of the organization is to maximize the value of information services while minimizing associated cost. Common organizational element, budget emerges from the goals and objectives and directly support the mission statement, goals and objectives of the parent organization.
Typically, budget serves three major purposes, planning, coordination, & controlling. These three functions dictate that budgeting and financial management process flexible but accountable throughout the fiscal period. Budget is common denominator of an organization and a constant in the life of any organization.
Budget represents a vehicle for sharing information regarding programs, development and implementation. When staff has a global understanding of available resources and the commitment of those resources, then staff responsible for the programs will function with more knowledge of finite resources.
Budgets are called by various terms: operating plan, planning tool, policy tool, and medium of communication. What budget does is allocate limited financial resources to competing organizational units. Many budget also set standards against actual performance is compared, thus reveling how effectively are being met.
Communication tool – A budget communicates to staff the reality of available resources- human, technological and financial. It also communicates the objectives that staff help developed and committed to meet.
Planning tool – A bottom-up approach to planning is organizational learning in action. This is staff buy into planning and budget process and commit to working toward the fruition of their efforts and talents.
Contract – This is a binding agreement between senior management and the rest of the organization, a promise to allocate a determined amount for agree-upon objectives. Major policy tool, how you, as a decision maker, spend your organization’s limited resources is perhaps the most important policy decision you will make during the fiscal year.
A holistic approach to budgeting involves the entire organizational system. This leads us to consider concepts popularly known as internal and external environment. If we think of internal as the department itself, external would be the parent organization outside the department. Further away but still in the external environment would be forces such as legislation, the economy, technological change and competition, which affect both the parent organization and department. Using the model, major problems that affect the organization can come from external environment as well as from itself. Chilean scientist Humberto R. Maturana and Francisco J. Varela argue that organizations environment are not define as internal or external: rather anything that contributes to an organizational system’s detriment or to its functions is part of its environment, and all interactions effect the environment as a whole. Applying this model, the system would include vendors and suppliers, legislation, technology and economic conditions. In many geographic locations, even the weather would be a recognized force.
Changing Shape
In response to the increased worldwide competition, dramatic growth of technology and rapidly expanding patterns of takeover, merger, and restructuring many organization have transform their shape organizations that is sensitive to ripples in its environment will react accordingly or it may anticipate environmental change and be prepared. Organizations that ignore or not aware of their positions in a changing market cannot sustain business. Mission statement may change to reflect either the narrowing focus on a market or an expansion base on the breath and diversity of a conglomerate. As the mission changes, so will the budget.
Getting the Budget
Suppose we embraced the holistic approach and invite all involve to the budget planning table. A fundamental considerations is” when do you need everybody in the organization to be involved in an event and when will a critical mass of stakeholder do’? ( Baker and Alban 1997, p. 152) We must consider the breath of our environment, the stance of our parent institution, amount of available time and the magnitude of people involve.” Our approach…. has not been one of imposition or laying on, but of working with people and bringing the things out. We first bring the people view of the problems as they real to them in everyday work situations. We explore with them their attitudes in relation to these problems- how they contribute them and affect their own work. We look at that in terms of their colleagues in other areas – how that relationship might be affected. We’ve been approaching it in a way that we’ve been creating ownership of the problems and consequently, the solutions are emerging…. the next area has to do with budgeting basically. Budgeting should fit what you’re planning…. and so we’re looking at program budgeting as another concept that seems to make sense”.
What happens to a budget during difficult financial times? Not every organization’s economic woes are caused by a weak economy. Unwise marketing strategies, poor business decision-making and consumer behavior can trigger bottom-line havoc. When the parent organization’s income fall short of expectations, the short fall is passed along to divisional and departmental budgets, a process generally labeled as cutbacks. Bankruptcy filings by airline, major retailers, telecommunications giants and financial service companies account for big dollar losses in the economy. While each dollar spend nourishes the economy, the converse is also true, every dollar lost sends a negative ripple throughout the economy.
Program Budget
A line-item budget focuses on expenditures (salaries, equipment, and supplies); while a program budget emphases expected results in major program areas and call attention to long term, organization wide strategies and objectives by linking them to revenues and expenditures. A program budget allows leaders to make informed decisions regarding organizational goals.
A program budget makes optimal use of limited resources by minimizing conflict and overlap among projects.
An approved budget is the final product; it reflects the whole system’s effort to express perceptions of how to make the most of organizational strengths and opportunities. How to strengthen organizational weakness and how to ward off threats.
Conclusion
For many business or corporations failing to plan financially might mean your unknowingly planning to fail. Business budgeting is one of the most powerful financial tools available for business owner or corporations. Maintaining a good short and long range financial plan enables business to control the cash flow.
The most effective financial budget includes a short-range month to month plan for at least a calendar year and a quarter to quarter long range plan use for financial statement reporting. It is recommended to be prepared during the two-months preceding the fiscal year-end to allow ample time for sufficient information gathering.
The long-range plan should cover a period of at least five years on quarterly basis. It should be updated when the short-range plan is prepared. Using the budget as an ongoing financial tool during a given year is recommended. Financial budgeting is a vital tool.
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