Budgeting Styles and Their Impact on Business Performance (LCBB5002)

This essay delves into the critical role of budgeting in business organizations, emphasizing its importance for financial planning and control. It explores the three main categories of budgets: capital, financial, and operational, highlighting their functions. The essay analyzes various budgeting styles, including static, flexible, and participatory budgeting, examining their respective benefits and drawbacks. It discusses the impact of external changes on different budget styles and evaluates the merits and demerits of participatory budgeting, particularly its implications for business performance. The conclusion reinforces the significance of effective budgeting for successful business operations, emphasizing the need for strategic financial planning to achieve organizational objectives and maintain competitiveness in the market.

Manager Helps

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Role of Budgeting:.......................................................................................................................4
Benefits and demerits of different types of budgeting styles used by manager..........................4
Impact of external changes on various budget styles used by manager......................................6
Merits and demerits of participatory budgeting and their implication on business performance6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
A budget for a business organisation is a financial plan that is created for a specific
period of time and includes various operational attributes such as planned sales revenues,
volumes, cost and expenses, resource quantities to be procured, liabilities, assets, cash flows etc.
Budgeting is the strategic process through which a business organisation creates the financial
plan towards making the most optimum use of their financial resources for the successful
operations of the business organisation (Asogwa and Etim, 2017). Budgeting is an immensely
important strategic function of a business organisation’s planning process without which the
business can find it an arduous task to operate successfully within the consumer markets.
MAIN BODY
Budgeting is a management control process through which the management of a business
organisation can effectively ensure that the business is able to obtain its organisational resources
in an efficient manner so that the business organisation is able to effectively accomplish its
organisational objectives and vision. Within a given business organisation, budgets can fall into
three main categories:
Capital Budgets: These are a portrayal of the business organisation’s planned and approved
capital financial expenditures for a specific period of time ranging between 1 to 10 years.
Financial Budgets: These are the projections of a business organisation’s balance sheets, cash
flow statements, statements of financial resources and uses of funds.
Operational Budgets:These consists of a business organisation’s projected income statements
and related supporting statements such as budgeted production, budgeted sales, budgeted costs of
sold products, budgeted selling costs, administrative costs etc.

Role of Budgeting:
Budgeting process is a vital for the success of any business organisation as it helps with
both the planning and controlling of the financial resources possessed by a business organisation.
The main roles of budgeting within a business organisation are as follows:
 One of the most important roles of budgeting within a business organisation relates to its
management being able to effectively control the amount and expenditure of the financial
resources possessed by the business organisation.
 Another role of budgeting within a business organisation relates to budgeting operations
ensuring that the business organisation is able to fund all its current and potential
business operations for the future, as is planned by the leadership and management of the
business organisation (Aryshev and Ivanyuk, 2020).
 Budgeting operations within a business organisation also enable the business to be able to
effectively achieve and accomplish its organisational objectives, goals, vision and
mission by making sound and productive financial decisions for the business
organisation.
 Creating a budget plan as part of the budgeting process also allows for a business to
guarantee it possesses required financial resources for its future operations.
Benefits and demerits of different types of budgeting styles used by manager
Static budget are mainly based on company total level of revenue and output in the
beginning of accounting period thus it can be stated that these types of budget are prepared on
basis of data collected and evaluated before budget period (Bielefeld and Schneider, 2017). So,
once the budget has been prepared the company will further track its actual spending and pay
attention of different types of variance in budget. There are various advantages and
disadvantages of statics budget which can be illustrated as follows:
Advantages of static budget: It can be stated that this types of budget styles is easy to follow
and implement within firm as manager need not have to update budget throughout accounting
period. Another advantages of static budget is that it offer strong insight on total cost and profit
of company in case of variance analysis thus better strategies can be formulated to enhance
profitability of firm. Thus, company can easily analysis or identified areas at which it have
underestimated or overestimated its revenue and expense and make relevant changes in strategies

for effective achievements of goals. At last, statics budget also contributed in controlling overall
cost and making better or smart decision which can helps in growth and sustainability of
enterprise.
Disadvantages: Despite of so many advantages of statics budget styles there are certain
limitation which needs to be understand by manager of company to take appropriate decision to
select particular budget for expansion of business. Biggest drawback of statics budget is lack of
flexibility such as firm prepared budget on basis of specific sales volume and profit margin but it
increases due to some reason so it cannot allocates additional resources (Vagin and Shapovalova,
2016). There are certain areas in which company lacks so sufficient requirements of budget can
contributed in there effective operation but in statics budget it cannot be possible. Therefore it
negatively impact on overall company revenue or profitability. At the same time it can be
illustrated that statics budget are based on old data so it is difficult for company to implement
them as per recent situation. So, it is not suitable for companies that have fluctuating profit, sale
volume every year.
Flexibility budgeting: It is types of budget that is prepared on the basis of total amount of cash
takes in and out by enterprise within specific period of time. Thus, it helps manager to effective
plan for growth and success of business in future circumstances so it is great solution for
company that have fluctuating expenditure in month.
Advantage: There are certain businesses in which purchased have to be made at large scale
during specific season so that customer’s requirements can be fulfilled. Therefore such flexible
budgeting helps in making adjustments of large purchase without any additional requirements of
adjustment in following months. Flexible budget helps manager to easily meet uncertain
expenditure of firms thus reduce amount of mental stress related to financial requirements.
Disadvantages: It can be stated that flexible budget are more confusion as manager needs to
track expense and make necessary adjustments during particular periods. Therefore there may be
ranges of changes within specific period of time which create lot of confusion manager (Abers
and et.al., 2018). It can effects operation of business ion long run as in statics rigid program or
procedure is followed each month whereas in flexible budget is changed as per expense which
may also lead to cheating.

Impact of external changes on various budget styles used by manager
It can be stated that there is no impact on statics budget as they are not changed or
manipulated as per external factors such as increased in demand of customers or overall sales
volume etc. On the other hand external changes have influence on flexible budget as they have to
incorporate changes of specific month such as increase in sales volumes illustrated that there
would be more demand of products in which so company can easily expand its budget as per
situation in order to gain competitive advantages (Warren and Jack, 2018). Therefore it can be
stated that these budget impact upon short term decision making of manager as it have to
considered both statics and flexible budget for smooth operation of enterprise and achievements
of objectives.
Merits and demerits of participatory budgeting and their implication on business performance
Participatory is a type of budget in which lower level management employees takes
active part in decision making related to budget preparation so that overall expense of firm can
be meet and customers needs can be fulfilled. The top management share responsibilities with
lower management by delegation them authority or sense of ownership so that they can perform
their best for growth and expansion of business (Vagin and Shapovalova, 2016). There are key
merits and demerits of participating budget that are explained below:
Transfer of information upward: Lower level management is free to share its view, feeling and
idea or necessary information to top management of firm and at the same time top management
can easily exchange several challenges that it might facing while preparation of budget.
Therefore, through better sharing of information effective solution of problem is made and
budget is prepared for functioning of enterprise.
Employee’s motivation: Another advantage of participating budget is that it motivates
employees to put their best for growth and sustainability of enterprise in competitive market.
Involvement of lower level employees in decision making related to budget enhanced their
confidence level and create a sense of belongingness thus they are ready to make optimum
utilisation of their skills and capabilities for benefits of firm.

Disadvantages: It can be stated that it involves lot of wastage of time, money and efforts as top
management before preparing budget take consent of all employee that are working in firm
(Afanasiev and Shash, 2016). Budget slack is another limitation or drawback of participatory
budget as employees due to less knowledge may under or over estimate requirements of budget
thus it could adversely impact on overall performance and position of organisation in industry.
Therefore it can be illustrated that participating budget helps in enhancing performance of
business by increasing employee capabilities and abilities to complete task. They are high
motivated and inspired to give their best or take risk as top management have give them
authority to take decision related to preparation of budget.
CONCLUSION
Through this report’s findings, it is concluded that budgeting comprises as an immensely
important aspect of a business organisation’s planning process, with effective budget planning
within a business organisation contributing effectively and immensely towards the successful
operations of the business organisation in the operational industries and consumer markets. This
essay analyses the role of budgeting including static and flexible budgeting styles and assesses
the advantages and limitations of budgeting process.

REFERENCES
Books and Journals
Abers, R and et.al., 2018. Porto Alegre: Participatory budgeting and the challenge of sustaining
transformative change.
Afanasiev, M. P. and Shash, N. N., 2016. Program budgeting: new aspects of
efficiency. International Information Institute (Tokyo). Information, 19(10B). p.4839.
Aryshev, V.A. and Ivanyuk, T.N., 2020. BUDGETING IN THE CONTEXT OF BUSINESS
DIGITALIZATION. Bulletin of Zaporizhzhia National University. Economic Sciences.
(2 (46)). pp.49-53.
Asogwa, I.E. and Etim, O.E., 2017. Traditional Budgeting in Today's Business Environment.
Journal of Applied Finance and Banking.7(3). p.111.
Bielefeld, B. and Schneider, R., 2017. Basics Budgeting. Birkhäuser.
Vagin, V. V. and Shapovalova, N. A., 2016. Participatory budgeting and related
practices. Finansovaya analitika: problemy i resheniya—Financial Analytics: Science
and Experience, (38). pp.2-19.
Warren, L. and Jack, L., 2018. The capital budgeting process and the energy trilemma-A
strategic conduct analysis. The British Accounting Review, 50(5). pp.481-496.