This document explains the sequence of the budgeting process and discusses the issues related to the behavioral aspect in budgeting. It highlights the importance of budgeting and its impact on organizational goals.
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Budgetary Sequence
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Table of Contents INTRODUCTION...........................................................................................................................3 MAIN BODY...................................................................................................................................3 Explaining budgeting process sequence and describing the issues of the relevance in the behavioural aspect in the process of budgeting...........................................................................3 REFERENCES................................................................................................................................7
INTRODUCTION Budgeting deals with mapping all the expenses and costs incurred in the production of products or providing the services. All the organisations are required to prepared the budgets for proper allocation of resources where effective utilisation can be made of the budgets. Present report is about the budgeting and the process involved in budgeting with the issues affecting the budgets. MAIN BODY Explaining budgeting process sequence and describing the issues of the relevance in the behavioural aspect in the process of budgeting Budgeting refers to the process where the future income and an expenditure are been decided for streamlining an expenditure process. It is done for keeping the track on the income and the expenditure. It starts with deciding on the financial goals in accordance to which a budget would be made (Gordon, Osgood Jr and Boden, 2017). The other crucial activities that are involved in budgeting process involves the things like monitoring, evaluating, controlling, forecasting the financial goals of the business. Budgeting process tends to be critical for any type of the business organization. Without the proper framing of the budget, business could not be able to trace the amount that is earned and the spent by the company. Budget mainly serves as the great guide through which business could oversee their income stream and could determine the potential dangers towards it beforehand. Moreover, budget acts as the most valuable tool that is been used for ensuring control over the expenses by the business. It helps in making sure that the money has been spent towards a right direction and the financial goals are achieved. The budget is been framed or prepared by following the sequence or the steps that are as follows- Step 1- Updating the budget assumptions Budgets are always been prepared based on the certain assumptions or estimations. Such assumption could relates to sales trends, environmental conditions or the cost trends (Wildavsky, 2018). Prior to framing of the budget, these anticipations need to reviewed thoroughly in accordance to recent or present condition of environment. Step 2- Assessing the the available financial resources
Limited funding could greatly hinder growth project of an organization. Therefore, while preparingbudget,appropriateattentionrequiredtobegiventoavailablefundingasan availability of an investable funds would identify an initiation of the viable projects. Step 3- Determining costing points The environment of the business is subjected to the dynamism and everyday it has been been posed with the challenges that could entirely results in changing the cost structure. Thus, in the process of budgeting there are certain factors which directly impacts costing of the business must be analysed closely. Such actors need to be determined beforehand for the purpose of making budget more and more realistic. Step 4- Creating the budget package In the budget package, standards that had been setted previously in relation to the process of budgeting are been taken in respect of formulating the budget for a current period. Prior standards are been updated as per the current environmental condition or circumstances. Budget package is counted as an outline as per which the budget is been prepared. Step 5- Obtaining the revenue forecast It has been stated that the sales budget seems to be most critical budget among all kinds of the budget. All the other budgets tends to be based on sales budget so it is very important for an entity to obtain n accurate forecast relating to the revenue (Weiskirchner-Merten, 2019). Further, sales budget helps in determining whether business is been generating sufficient revenue for its long run survival. Therefore, it is crucial for an organization to pay an adequate attention towards framing of the sales budget through forecasting the demand accurately. Step 6- Obtaining the department budgets After preparing the sales forecast, in the next step department budgets are developed that will help in reaching to the budgetedexpenditurefor a particularbudget period. Every department would be preparing its budget and thereafter all the budget will combined in order to become as the part of the master budget. Step 7- Validating compensation Plans in relation to compensation plays a significant role in the budgeting process as the compensation is subjected towards an annual increase, thus, it need to be prepared with the great care. Approval regarding increase in compensation has to be taken first from top executives and
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after that it must be augmented within the budgeted or set compensation plans.It is also required as the employees are motivated by increase in remuneration for their performance. Step 8- Validating the bonus plan Under this step for the purpose of maintaining morale of an employees, bonuses are been given out to the motivated workers. It acts as the method of appraisal and if it is not counted in the process of budget then it could create havoc in profitability of the firm (Mauskopf and Earnshaw, 2017). Business is also required to assess the sources from which the bonus will be paid to the employees. Step 9- Obtaining the capital budget request It ensue that the capital expenditures are made for the expansion of business. It aids businesses in availing the various opportunities which are essential for the growth of business. Plans for capital expenditures are required to be taken before the budgets are prepared by the business. These are to be included in the budgets prepared by the organisation accordingly. They are also required to calculate the costs related to the capital expenditures. Capital expenditures are generally high therefore it is essential for making the correct estimates. Step 10- Updating budget model Changes in assumptions made in the budgetary models are required to be updated for preparing the final budgets of company. Assumptions are an important part of budgets are budgets are based over significant assumption. Any changes in the significant assumptions can affect the accuracy and reliability of the budgets . Therefore all the updates in the assumptions of budgets are required to be updated timely. Step 11- Reviewing budget After the budgets are prepared they are required to be reviewed thoroughly by the top executives of business. The management are required to identify all the flawsexisting in the budgets and rectify them at time. A slight variations in the budgetary figures can cause significant unbalance in budgetary sheets. Reviewing process has to be carried out by the organisation with the utmost care and diligence as after that the budget will be passed by the top executives of business for implementation. Step 12- Obtaining approval After carrying out all the budgetary steps given above the budgetary reports are presented to the top level executives and management of business. They will evaluate all the estimates and
budgetary costs and expenditures for which the budgets have been prepared by company. The approvals are made by the executives when all the required changesare made in the budgets. After the budgets are approved they are finally implemented in the business. Step 13- Issuing budget Budgets after their approval are required to be issued formally by the business enterprise. All operations related to the production of goods and services will be carried out accordingly (Swensen, 2018). No operations can take place till the budgets are formally issued by the top executives. The issues of relevance in behavioral aspects of Budgeting process are been discussed below. It includes the following issues: Dysfunctional Behavior:As it has been analyzed that Budget can bring positive behavior in between employees when their goals matches with that of organization. Fair Budget can lay positive impact on mind of employees. But there might arise a situation where budget is not being properly implemented, the expectations of management is unrealistic and sub-ordinate manager’s reaction is also negative which can lay negative impact on organization for achieving their goals and objectives. Such negative behavior can be considered as dysfunctional; this can lead to organizational conflict. Participative Budgeting: In this organization motivate employees to participate in budget making process, this enhances morale of workers, but this aspect also has some negative impact like top management has full control over budget making process, they might not be involved in giving full authority to sub-ordinates that can hamper their mind set and their motivation may be lowered down. Also if too many employees are involved in making budget then this can lead to delay in budget making process and can create differences against members. Excessive pressure created by Budgets:Budgets are being prepared so that each activity can be effectively directed and controlled in organization. If the goals and standards set in Budget are too firm to be achieved manager may lose interest which ultimately decreases his level of performance. So Top management must be engaged in making realistic budget in order to keep employees motivated (Chohan, 2017). It has been analyzed that no budget can be successful if
unrealistic expectations has been set in that and also employees are unwilling to accept it. For this Company must lay special emphasis on motivating personnel’s in organization. REFERENCES Books and journals Gordon, V., Osgood Jr, J. L. and Boden, D., 2017. The role of citizen participation and the use of social media platforms in the participatory budgeting process.International Journal of Public Administration.40(1). pp.65-76. Weiskirchner-Merten,K.,2019.Interdependence,participation,andcoordinationinthe budgeting process.Business Research.pp.1-28. Wildavsky, A., 2018. Budgeting as a political process. InThe Revolt Against the Masses(pp. 338-349). Routledge. Chohan, U.W., 2017. Budget offices.Global Encyclopedia of Public Administration, Public Policy, and Governance. Mauskopf, J. and Earnshaw, S., 2017. Reporting Budget-Impact Analyses. InBudget-Impact Analysis of Health Care Interventions(pp. 165-188). Adis, Cham. Swensen, D., 2018. ALCTS Budget and Finance Committee-ALA Midwinter 2018.
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