Management Accounting: Budgeting Needs, Procedures, and Modern Methods

This report critically analyzes the need for budgeting and the procedures involved in formulating a budget within the context of management accounting. It emphasizes the importance of budgeting as a tool for planning and controlling the use of scarce resources, enabling businesses to set objectives and allocate resources effectively. The report details the budgeting process, including obtaining estimates, coordinating estimates, communicating the budget, executing the budget plan, and reporting progress. Furthermore, it provides a detailed assessment of modern budgeting processes, such as Activity-Based Budgeting (ABB), Rolling Budget, and Zero-Based Budgeting (ZBB). These modern approaches are examined for their ability to adapt to changing business environments and improve operational planning, flexibility, and resource allocation. The report highlights the benefits of each method, including improved cost control, better resource utilization, and enhanced strategic goal execution.

Management Accounting

Table of Contents
Critical analyse need and the procedure of formulating the budget with detailed assessment of
modern budgeting process...........................................................................................................3
REFERENCES................................................................................................................................1

Critical analyse need and the procedure of formulating the budget with detailed assessment of
modern budgeting process
In view of Wildavsky, (2018), it has been presented that money and the time are counted
as the scarce resources for an individual and an enterprise, so it is important for the company to
make a detailed plan for making efficiently and effectively use of the resources. Planning and
controlling both are the necessary for carrying out the activities. Budget is seen as the tool which
the managers uses in planning and controlling use of the scarce resources. It is referred as the
plan that shows objectives of an entity and the way in which management intends it to acquire
and make the use of resources for attaining the set goals and objectives. The process of
budgeting includes planning for generating profitability in the future periods as earning
reasonable amount of return on the resources that are been used in the objective of the company.
Gallani and et.al., (2019), viewed that budget plays a crucial role in reflecting the
management about the operational plan for an upcoming periods and in formalizing the
management plans in terms of quantitative nature. It forces the each and every management
levels in thinking ahead, taking appropriate actions to resolve the poor outcomes and in
anticipating accurate results. Budget enables the managers in motivating or encouraging an
individual for achieving the stated goals (Budgeting and the process of budgeting, 2017).
Companies could make use of the budget in making comparison between actual and the budgeted
figures that in turn helps in evaluating the performance of an individual within the work
environment.
It has also been highlighted by the Gordon, Osgood Jr and Boden, (2017), that there are
various other benefits that are resulted from the framing and use of the budgets. Through budget
business organization could be able to coordinate its activities in a better way and the managers
became more and more aware of the plans that are been prepared by other managers. With the
preparation of the budget employees become more and more cost conscious and tries to conserve
the resources. Company makes review of its organizational plan and modifies it in regular
intervals so that adequate controlling is ensured. Managers could foster the vision that might not
been developed otherwise.
The process of planning which results in the formal budget facilitates an opportunity for
several management levels in order to think and committing to towards the future plans. In

addition to this a budget that is prepared properly allows the management in following principle
of the management by exception with devoting an attention to the results which deviates from
the planned targets. In respect of all these reasons, budget is needed for clearly reflecting an
expected results.
Moreover, Mukherjee, Al Rahahleh and Lane, (2016) analysed that failing to the budget
due to any uncertainty in the future is considered as the poor excuse for not making a budget.
Practically, lesser the stable conditions, more essential and desirable it becomes for the company
to prepare a budget, though this process becomes more and more difficult. However, stable
operational conditions permits a greater rely on the previous experiences as the bases for
formulating a budget. Thus, the budget includes more than the past results of the company and
also considers the future plans for the company and in expressing for an expected activities. As
the result, budgeted performance seems to be more useful than the past performance as basis in
judging the actual results. Budgets are considered as the quantitative plans for a future periods
and on the other side it is based mainly on the past experiences or the future expectations.
Therefore, accounting data in relation to the past data plays a crucial role in the preparation of
the budget.
In opinion of the Uthes and Matzdorf, (2016), it is been viewed that budgeting process
involves several steps that are been followed by the managers while preparing for the budget.
These steps are as follows-
Obtaining an estimates- The first step is to anticipate sales, expected cost, resource
availability and the production levels from each and every department. The departmental
managers needs to provide an estimate regarding the future conditions and an activities which
will have a great impact on an enterprise. The participation and discussion might be in form of an
informal discussion and creating detailed reports of the plans that need to be submitted to budget
committee for an approval.
Coordinating estimates- After obtaining estimates, budget committee makes an
evaluation of the different plans that are been submitted by several organisational units in
identifying potentiality of the plans in the interest of the company. It also helps in estimating the
resources that are available and is allocated within the several organisational units.
Communicating the budget- Presenting the budget to the responsible managers is the
next step after an individual budget plan is been approved in context of entity's goals and the

resource availability. All the changes and the modification that are incorporated in final budget
must be made known to the managers in obtaining their cooperation and the support for budgets.
Executing a budget plan- Finally the budget is been presented to managers concerned
with adoption of the operational plan for coming accounting periods. Several service units in an
enterprise are been needed fro facilitating required material, facilities, labour and the other
resources for carrying the budget.
Reporting progress- In terms of feedback in the process of budgeting, performance
reports are been prepared for informing the departmental managers and the top executives about
performances that are resulted in relation to the budgeted figures. This information could also
used as base for framing the budget for the coming years.
Helpap, (2017) stated that despite the use of traditional budgeting approaches, changing
trends in the business environment led to introduce modern methods of budgeting that involves
Activity based budget, rolling budget and Zero based budget. Activity based budgeting mainly
emphasize on the developing of the budget on the basis of activities instead of the units. ABB
needs determination of cost relating to planned activities on basis of resources and the expected
size that they consumes. An enterprise make use of ABB in forecasting demand for an activity
and also for using resources they require creating balance between available and the demanded
resources and based on this creating an effective operational plan. ABB method of budgeting
helps the company in adjusting the demanded quantity, resource consumption, resource capacity
and rates of activity consumption. Using an ABB approach an entity could be able to determine
the requirement of resources, ascertainment of the cost attached to the activities can be linked to
the outputs in a better way. Thus, ABB is tended to be the new model that changes and improves
an operational planning by providing more and more flexibility in reacting to an unexpected
events. It also helps in reducing the bureaucracy and time required in the traditional budgeting.
Rolling budget refers to the budget that contains fixed period of time and is updated on
the regular basis with providing overview of coming periods. With the help of rolling budget,
managers rethinks process and make the changes for each period. Through this budget, the result
generated seems to be more accurate and updated as it incorporates the current or present
information (Modern budgeting approaches, 2018). This budget is been used as the replacement
or in a combination with the traditional budget for running business as the conditional change.
Rolling forecast are the counted as the budgets prepared for short period and compels an

organization in focusing towards the future. It is also stated as the financial estimates relating to
future outcomes that are based on the current assumptions and an economic forecasts in relation
to an environment and a company's plan.
Zero based budgeting means the method within which all the expenses are been justified
for every new period. The process of the formulating this budget begins from the zero base or
scratch and each function within an enterprise is been analysed for its cost and the needs. ZBB
allows the company in looking towards an execution of the strategic goals into process of
budgeting by allocating them towards a particular functional area where the cost could grouped
and measured against the current and the previous expectations. ZBB helps the firm in optimum
use and allocation of its resources and this approach drives the managers in finding out effective
ways for improving the business activities. It is the approach that detects for an inflated budgets
and is counted as useful for the service departments as criteria is not always easy for
determination (Uthes and Matzdorf, 2016). It assist in increasing communication and improving
coordination at the workplace and also identifies or eliminates the wastage and the outdated
operations. This approach helps in identifying the opportunities for the outsourcing and forces
the cost centres in linking their mission to related organizational objectives.
Thus, modern approaches helped the organization in coping and matching up with the
current trends and also in achieving growing success in the future.

REFERENCES
Books and journals
Gallani, S. and et.al., 2019. Budgeting, Psychological Contracts, and Budgetary
Misreporting. Management Science. 65(6). pp.2924-2945.
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.
Helpap, D. J., 2017. Guiding the Public Sector: Assessing the Use of Recommended Practices in
the Budgeting Process. International Journal of Public Administration. 40(7). pp.559-574.
Mukherjee, T., Al Rahahleh, N. and Lane, W., 2016. The capital budgeting process of healthcare
organizations: a review of surveys. Journal of Healthcare Management. 61(1). pp.58-76.
Uthes, S. and Matzdorf, B., 2016. Budgeting for government-financed PES: Does ecosystem
service demand equal ecosystem service supply?. Ecosystem Services. 17. pp.255-264.
Wildavsky, A., 2018. Budgeting as a political process. In The Revolt Against the Masses (pp.
338-349). Routledge.
Online
Budgeting and the process of budgeting. 2017. [Online]. Available through:
<https://courses.lumenlearning.com/sac-managacct/chapter/introduction-to-budgeting-and-
budgeting-processes/>
Modern budgeting approaches. 2018. [Online]. Available
through:<http://seaopenresearch.eu/Journals/articles/SPAS_4_56.pdf>
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