This sample will let you know about:
- What is Behavioural Aspects?
- Explain the the sequence of budgetary process.
Development of the society, economics and growing market, is accompanied by continuous modification and improvement in business management. The essential need for surviving in an environment of tough competition leads to necessity companies to analyze past results, plan and chase future targets. John R. Bertizel has described the budget as ‘a forecast, in detail, of the results of an officially recognized program of operations based on the highest reasonable expected operating efficiency’ (Madegowda, J.(2006). Management accounting). On the basis of this statement, the budget is a forecast for the business goals that will be achieved with maximum efforts, bring the recourse into more productively and profitably. It is a guide for the future and to examine the nature of that future guide it is a must completely understanding of the strategic planning and aspects of the budgeting process in detail. Need Assignment Examples?Talk to our Experts!
There are number of essential stages which support to develop most suitable and convenient budget which are followed by manager (Clutton-Brock, 2012). These are discussed below:
- Specify a mission: It is obvious that company sets out the vision statements depending on the mission. Then manager implement the long-term objectives, integrating budget and prepare a list of the strategic objectives to state the way of achieving the business goals.
- Carefully choose a suitable strategy: Manager of company use to select the related and specific business stage which help in allocating the resources in the most suitable format so that results can be attained. As strategy are effective to define the format of operation and ensuring that maximum benefit can be obtained by company to reach the actual pre defined goals.
- Budgetary planning for converting the strategic plans which support in performing the business activities and task in most appropriate manner so that targets can be attained attained.
- Budget and budgetary control as a tool for comparing the actual results with the budget figures. The budget is a tool to achieve the goals. A precisely prepared budget serves different functions supporting the basis for sales figures, labours cost, production, investment in cash, capitals and many more. Therefore, it is necessary for each and every staff member to perform the work in systematic manner with managers so that persecuted (budgeted) figures can be achieved.
Budgetary control benefits managers to identify on the problematic cost centre in the early stages of business which is more than the expected cost (Hwang and Ng, 2013). This also enables them to prepare more detailed and effective steps to make further corrective actions and reduce the cost figures.
The sequence of budgetary process
ICWA, define budget as a valuable document which sets out the responsibilities of the persons engaged in the routine and the forms and records required for, budgetary control.’
The stages of the sequence of the budgetary process are:
- Communicate objective and strategy: Objective and strategy should be involved in a strategy document and then regularly spread within the organisation. The document aims to introduce objectives of the organisation and ensure all staff member are involved. They must be aware about the entire details of the targets which the company wants to achieve in specific time frame. The document is mainly prepared to clarify the objectives and provide detail of role to be performed by respective participant within the company.
- Communicate procedures: Within the organisation, there is always the need for keeping high-level communication of budget preparation procedures. It happens by using budget manual which is a written document with the role of guiding during the budget preparation, setting out the timetable, responsibilities and relationships between various executives.
- Determine the limiting factor: It is essential the limit factor be determined as an early stage of the budgetary preparation as it is a factor which is dominating as an obstacle in the business process. It is also known as a key or governing factor. Importance of its identifying comes from the fact that the key factor limits the capability of the businesses to maximise their results and this factor will affect the result in some particular stage. Therefore, CIMA describes the limit factor as, factor in the activities of an undertaking which at a particular point in time or over a period will limit the volume of output. It is recommended the rest of the budget to be prepared influenced by the budget related to the limit factor (Bakeman and Quera, 2012.). Moreover, to be realistic the budget is needed to be prepared after determining the limiting factors. Otherwise, the organisation will not achieve budgeted, expected results. Over the operating, the business may be impacted by varies of obstacles, most of them with temporary nature. Example for limiting factor is every demand for the product, raw-material, capacity of the existing machines, experienced staff, limited operating funds, etc. For instance, if the company produces product A but demand does not meet the expected one, the limiting factors are insufficient demand. In this case, the company should be the focus on producing another product B or take the decision to promote product A. The opposite situation is when a company can sell more product A but the raw-material is sufficient to produce less than the demanded quantity of product A, the key factor is a shortage of materials. In this case, the organisation should start the budgeting process from the purchase, instead of the sales budget. It is not excluded a situation when the company operate on its full efficiency, demanding is desired, as well the raw-material is not limited but the production capacity on their maximum or the labour force is not skilled. The budget planning should start from the production budget or recruitment budget respectively if the limiting factor is the labour. From the above examples, the statement that over the operation of the businesses, the limiting factors changes and appropriate steps are necessary. Order assignment help from our experts!
- Preparing initial set of budgets and negotiate budgets: The various budgets, for the defined period, are linked to one another (Ekkekakis, 2013). From this point, they support the businesses to maintain co-ordination and the successful process is dictated when all the participants take part in the preparation process. The content of all the operational budgets is following, setting out quantities of required recourse. The cash budget is involved, as well as an individual one. The contents of all mentioned budgets are summarised in the master budget, which consists of income and financial statement.
- Review, final budget and ongoing review: The final budget serves to managers if the actual performance is about the targets.
Behavioural aspects of budgeting
Budgets are widely recognized for their function to support effective management of resources and activities in the entire budgeting process. However, the budgets do not exist in a perfect world and they suffer from several limitation and behavioural aspects. The behaviour aspects may be generalized to several areas related to their effect on the budgetary process: motivation, participation, feedback, group effects, budget slack and politics of the organisation. In most of the cases, individuals involved have better performance if they are supervised and have specified targets to achieve but there are obstacles in defining the task difficulties and there is a moment that working hard is not enough to reach the targets. It is considered the tight budget are better motivator but if the targets are set with a realistic probability of achieving, managers and other participants will gain a sense of self-esteem and aspiration. Positive sides will be brought if the people feel they belong to the process and their effort are significant for the results. Some people aim to maximize their performance and communication between level in the company can be destroyed (Peeke, 2012). To avoid this, the organisation should strictly maintain the relation between all levels and participants as one whole. It is important the human receive feedback on performance presented positively even if the actual targets are not expected, otherwise, the negative statement or criticism will be followed by loss of motivation. The same effect can be faced if the individuals do not value their participation in a group as the collective the main factor in higher performance. It means that particular attention should be paid to group connections. However, the budget mission is not mainly to chase labour performance.
There is some concern that in many organisation the managers build a budget slack ensuring spare resources to meet budget targets. Decisions of this sort may reflect on higher costs by their attempt to meet the budget.
Limitations related to the budgetary process
- Unpredictable business environment: Due to rapid changes, the budget is frequently revised and adjustments are necessary. That, of its side, may cost unexpected additional expenses and it is time-consuming.
- Conflicts within budgets: Many organisation should deal with a lapse in the budget process. There is no perfect business situation with no difficulties. All the individuals are needed to cooperate their efforts as a collective and avoid conflict.
- Budget goals achievement: Based on the forecast can be closely gain but it is not excluded significant variance with the budget figures. The budget does not ensure the desired result. The time consumed in preparation does not guaranty success (Greenberg and Cohen, 2014).
In the end of report, it has been concluded despite budgets weaknesses, there are recognised managerial tool which supports planning, evaluation, recourse managing, communication and coordination within the process. Their advantages exceed the number of disadvantages. Moreover, most of the disadvantages can be controlled by appropriate adapting action and keep the usefulness of the budget.
For more - Business Research Project for Students