Budgeting Process, Behavioral Aspects, and Financial Planning Report

This report provides an in-depth overview of management accounting and the budgeting process. It defines management accounting as a crucial tool for internal decision-making, emphasizing its role in financial planning and control. The report details the budgeting process, including setting objectives, determining resources, projecting future needs, matching needs to resources, reviewing and aggregating budgets, obtaining approval, distributing funds, implementing budgets, and monitoring and evaluating performance. It also explores the behavioral aspects of budgeting, such as dysfunctional behaviors and the importance of participative budgeting. The report highlights how budgeting can impact employee morale, productivity, and organizational efficiency. It emphasizes the significance of budgeting for effective resource allocation and achieving organizational goals. The report concludes by underscoring the importance of budgets in guiding business operations and maintaining financial control. It includes references to relevant academic sources.

INTRODUCTION TO
MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is defined as the process related to providing the financial
informations and resources to management for decision making. Management accounting is used
by internal management team for improving the performance of company. Management
accounting helps the organisation to plan for its future activities and goals. Management
accounting includes various rules and concepts to be followed. With this information managers
of organisation are able to make more accurate decisions. It involves preparation of budgets and
various cost accounting reports for reducing the cost of production. The report is about the
budget and the process involved in preparing a budgets. It will also provide for the budgets and
the behavioural aspects of the budgeting process.
MAIN BODY
Budgeting
Budget can be defined as quantitative and financial statements of the operational plans
related to specific time period, that are required to be followed in the budgeted period for
achieving the specific financial objective of organisation. Budget is formal statement related to
estimated incomes and expenses which are based over future goals and objectives. Budget is
prepared by the management for estimating the expenses and revenues for upcoming period on
the basis of business goals (Budgeting, 2019). The budgets are prepared in advance before the
process of activity has been started and again after the process or activity is completed actual
cost statements are prepared.
Budgeting is a critical process for the business organisations. It involves various process
like evaluating, monitoring, controlling and forecasting financial goals of business. Budgets are
required to be framed after carrying out proper research about all the items that are to be
included in the budgetary process. The budgets are prepared for the organisation to have control
over its spendings and costs. Budget mainly serves as the great guide through which business
could oversee their income stream and could determine the potential dangers towards it
beforehand.
Budgets provide the organisation a defined direction to follow during the budgeted
period. Budgets helps in proper allocation of resources among the activities and department.
Budgets ensure that there is effective utilisation of resources within the activities (Morgan and
et.al., 2017). If these budgets are not prepared appropriately they may affect the whole cost

structure of company. Management prepares statements of variance analysis for comparing the
actual outcomes with that of the budgeted.
Sequence of budgeting process
Every organisation is scarce of time and money. Effective and efficient utilisation of
resources needs planning. Budget is prepared for planning and controlling the business
expenditures. Various types are budgets can be prepared by the organisation for planning the
future earnings and expenses. It involves projecting future profitability of the business and its
maintenance (Reome and Sinclair, 2017). The budgets are prepared after going through number
of processes. The steps involved in the budgeting process are :
Setting objectives for budgeting of company
Budgeting committees or key managerial personnels before the budgets are prepared for
company must set goals and objectives for future of company. The objectives to be included can
be cost savings, the defined limits of expenditures. The objectives should be made considering
all the factors that will lead the organisation towards growth and profitability. It should not be
limited over the expansion plan.
Determining the available resources.
Business objectives may influence budgeting process of company but should not entirely
dictate the process. Management are required to analyse the resources available and determine
whether the sufficient resources are available for reaching the objectives of company (Becker
and et.al., 2016). The availability of resources often dictate over a considerable extent objectives
of company. Resources are not limited over cash available with company and also include loans
or additional investment. The company should make available sufficient funds for carrying out
the operations of company.
Projecting future needs
Budget is prepared in advance and it is looking forward. It involves making estimates for
future. It is not possible for anyone to make accurate projections about the future budgetary
requirements of organisation. Management prepares budgets after making thorough research
about the future needs and demands by reviewing the previous budgets and estimates and the
variances. Company should analyse the market trend, company data for past years, data available
for competitors and the analysis about the existing & developing regulatory and economic trends.

Future needs are required to be estimated properly making significant research as the sales
projections will be making the structured budget. Too high high projection may lead to scarcity
of funds in future.
Matching the future needs to the available resources
Most of the times available resources will not be enough for fitting perfectly with the
projected needs of future. At this stage of budgeting cycle negotiations and compromises may be
made between departments for determining the sufficient allocation of scarce resources of
company (Guo and et.al., 2019). Management is required to keep in mind the strategic needs and
priorities at this stage so that the resources are evenly allocated between the departments. It is an
important task to ensure that the available funds are enough. Management is required to arrange
for the necessary funds so that all the operations are carried out smoothly by company without
any break down.
Reviewing the budget
Budgets after making all the adjustment are required to review the budgets. Management
is required to review the budgets after completion. They have to ensure that all the adjustments
have been properly made and all the requirements have been addressed. It is to be reviewed
effectively as errors of even decimals can make signifiant impact over the budget and whole cost
structure may be disturbed.
Aggregating the budgets
Once all the departments have completed their budgets. Management combines all the
budgets for forming one master budget. The master budget contains the aggregate budget
considering the revenues and expenditures of all the departments. This budget is sent for final
approval of top executives.
Obtaining Final Approval
After the budgets have been prepared carrying out all the research and future projections.
Budget is required to get final approval of the budgeting or any other body in governance who
makes final approval of the budget. The budgets are evaluated by the top executives that whether
these are prepared in accordance with the guidelines issued by them (Wildavsky, 2018). The

ensure that budgets has been prepared addressing needs of various stakeholders and and the
objectives of company.
Distribution of Funds
Management after the budget is approved by executives and finalized, budgeting process
includes distribution of the determined funds to various segments and departments of business.
Distribution should be made as per the budgeted levels.
Implementation of budgets
Budgets are finally distributed and implemented among all the departments of
organisation. After this all the departments are required to carry out their operation as per the
budget. They cannot make any adjustments to the final budgets without the approval of
management.
Monitoring & Evaluating
After the budgets are finalized and implemented budgeting process in no complete.
Management are required to actively monitor and evaluate whether the operations are meeting
the budgeted levels (Budgeting process, 2019). They should identify areas where budgets are
lacking and take corrective steps on time.
Issues of relevance on behavioural aspects of budgeting process.
Budgeting is a key part of managerial accounting, which focuses on using financial
information for planning and decision-making. Some of the behavioural implications related to
budget are being discussed below. The following behavioural aspects are of budgeting process.
Dysfunctional Behaviour
As it has been analysed that budget can assist organization as well as individual in
achieving their goals and objectives. It also helps managers in forecasting about the future
financial risk that can be faced by them. Managers can also create a negative environment while
overlooking the variances that are being found in Budget. This can also affect the performance
level of employees, it will reduce their productivity and makes them dysfunctional. Improper
implementation of budget by top level management can make employees negative directly

affecting work of employees. In order to create better work environment budget must have some
features like it should be flexible, it must be based on realistic standards., participation from all
employees must be taken.
Participative Budget
Top level management must be engaged in motivating employees in taking part in every
decision related to making of budget. This will assist them in improving morale of workers and
will also assist them in creating employee engagement. It will also develop a sense of
responsibility among employees. Also when workers are engaged in making of budget,
organizational goals will become there goals that will help them in increasing productivity of
company (Anessi-Pessina and et.al., 2016). But when lower level participates in budget making
process there might occur chances that their thoughts do not match with each other. This can
create chaos or conflict in between them reducing company’s operational efficiency. It will also
create excessive pressure and worker’s motivation also might get low. Also too much
participation can lead to delay in making of budget. Also lots of participation can make easy
target for budget.
CONCLUSION
The above study shows that budgeting is very important part in business. A business
cannot be run successfully without planning about the future actions. It is the spending plans that
keeps the organisation on track and a specified directions. Through budgeting organisations are
having strong control over their costs which is helping them to achieve their organisational goals.

REFERENCES
Books and Journals
Morgan, D. and et.al., 2017. Budgeting for local governments and communities. Routledge.
Reome, C. and Sinclair, T.A., 2017. Better Budgeting Is Good Governance. Shared Governance
in Higher Education, Volume 2: New Paradigms, Evolving Perspectives. 2. p.121.
Becker, S.D. and et.al., 2016. Budgeting in times of economic crisis. Contemporary Accounting
Research.33(4). pp.1489-1517.
Guo, L. and et.al., 2019. Vertical Pay Dispersion, Peer Observability, and Misreporting in a
Participative Budgeting Setting. Contemporary Accounting Research.
Wildavsky, A., 2018. A Normative Theory of Budgeting?. Performance Based Budgeting.
Anessi-Pessina, E. and et.al., 2016. Public sector budgeting: a European review of accounting
and public management journals. Accounting, Auditing & Accountability Journal.
Online
Budgeting process. 2019. [Online]. Available through : <https://bizfluent.com/info-8150552-
steps-budget-processes.html>.
Budgeting. 2019. [Online]. Available through :
<https://corporatefinanceinstitute.com/resources/knowledge/finance/budgeting/>.