Critical Analysis of Budgeting and Decision-Making for Softconic IT

This essay critically assesses the role of budgeting in helping managers make optimal decisions within a constantly changing environment, using Softconic, an IT company, as a case study. The essay begins by defining budgeting and exploring different types of budgeting, including static and flexible budgeting, and analyzes their respective advantages and disadvantages. It then delves into the scenario of Softconic, examining the impact of the COVID-19 pandemic on the company and its financial resources. The analysis extends to identify the most suitable budgeting style for Softconic's changing environment, comparing and contrasting static and flexible budgets. The essay also investigates real-world examples of IT companies that can be applied to this scenario. Furthermore, the essay explores participative budgeting, its benefits, and drawbacks, and how it supports decision-making in changing environments. The essay concludes by synthesizing the findings, emphasizing the importance of budgeting for strategic planning and financial management in the context of the case study.

Importance of Budgeting

Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
PART A..................................................................................................................................3
PART B..................................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Budgeting is a way of looking at the expected income (the revenues that accumulate in the
business via the selling of products and services) as well as the long-term expenses (the funding
that flows out when paying bills as well as wages). It support the business to recognize that the
management team of these expected income and expenditure will be able to afford as well as
operate their business at the anticipated steady speed. Softconic is really an IT firm mentioned in
this report; among a number of other web conferencing, it provides word processing apps for
computing.
In this report, type of budget, most suitable for business as per market condition is
discussed. In addition, Participative budgeting importance with pros and cons are also elaborated
underneath.
TASK
PART A
The budgeting theory is a vital element of every firm's success. Management provides
guidance about whether to start moving forward through money management that could be
passed out through teams and individuals, based on the characteristics and complexity of the
company. Budgeting process is really the basis of any efficient process for the development of
companies by sales forecasts, establishing standards as well as raising resources to different
outlets. Therefore, a wider viewpoint for the executive committee is the first component of
investment strategy offers. Even before notification is given, an assessment must be conducted
about whether the corporation is doing business in provided budget or not. The main purpose of
budgeting is to create short as well as long term proposals that help to reach desired
goals. Budgeting plays a vital role in turning medium-term plans into short-term ideas, making
financial choices to exploit short-term incentives and challenges because no enterprise can be
trapped (Otley, 2016).
Through continuously assessing the firm's existing situation, managers have the potential to
see the position of a company. Budgeting allows project managers to determine what sort of
innovation would really be feasible. Throughout the absence of a larger market restructuring
agenda, per expenditure would make practical sense to allow greater use of such a proposal
within the Softconic framework. Each budget has to return from within the business strategy

structure, that also allows employees take into account what some global economy position the
firm holds, and what's the company's customer platform, how company can broaden, and also
what sorts of initiatives should be chosen to take (Vlachy, 2018).
Budgeting process and short-term planning or decision-making are essential for client
survival in a competitive market environment. It is such that administrators may collect valuable
statistics about different issues with the help of multiple forms of budgets. For example, the
budget analysis gives an overview of the total revenue and expense ratios. Such understanding
will contribute to disciplinary measures in the coming year. As in the company mentioned
Softconic, its management makes short-term judgments and timetables information derived
through different budgeting methods. The main features of strategic planning seem to be there
are indeed a lot of policy initiatives, depending on the project's purpose. Managers of the chosen
organization are suggested for the management of specific economic activity with numerous
valuation techniques (Hiebl and Richter, 2018). Here managers can consider making strategic
decisions quickly by defining a particular technique of budgeting. Good decision-making enables
it to to transform their business model over the immediate future into short term plans.
Throughout the sense of Softconic two main mechanisms of budgeting have also been described
as follows:
Static-budgeting style: The spending plan forecasts the company's capability period as per the
form of fixed budgeting. This is generally required by the company that are predominantly set to
do company in similar patterns, while this expenditure plan is fixed year-round. In regards,
components with capacity-independent activities may be able to use this kind of budget. In
Softconic, the managing director and administrative staff typically focuses on supplying
consumers with the best serviced and product application; as a consequence, some departments
that are using static budgeting type (Honggowati, Rahmawati, Aryani and Probohudono, 2017).
This aspect of economic scheduling does have benefits and drawbacks that are defined as:
Benefits:
The key drawback of static budget is that it would be easier to adapt and execute as the fixed
spending schedule will not need to be adjusted regularly even during the economic cycle that
they will be supposed to reflect.
Drawbacks

The real drawback of strict budgeting is a lack of adequate versatility. When a company
establishes expenditure based on a defined sum of income, it would not be possible to spend
extra funds in maintaining if the turnover rises. If a business realizes service providers or
earnings to under-performing, it cannot spend extra funds on budgeting assistance (Bromwich
and Scapens, 2016).
Flexible budgets: This design is adjustable because the expenditure here tends to have been at the
point of actual / total capability. Since flexible budgeting is dynamic, companies are still doing it.
A fixed budget is altered to the enterprise actual activity. By the wide sequence of circumstances
again for current year it can help to determine the same expenses. Initially, it computes the
expenses actually incurred over even a given time period (Bui and Hopper, 2016). Therefore all
expenses should be separated as per their spending behaviours: fixed, dynamic, or mixed. After
this, the extendable spending plan for broad-spectrum operating costs is computed at various
stages. Here are a few key advantages as well as disadvantages of this method of managing
finances, as described in the following:
Benefits: It will assist in forecasting sales, costs and productivity at various operational cost of
output. It tends to determine the amount of product / results to be generated and support
companies achieve income rates and goals them. The far more important benefit of this money
management was whether it allows businesses to assess productivity levels under distinct
businesses and government circumstances. This often allows the different procedure budgeted
expenses to be categorized according to earnings, so that supervisors could even understand
exactly the sectors of benefits and thus respond properly.
Disadvantages: This method of costing depends on accurate monitoring of the plan. Unless there
were some mistakes recorded in the financial records the inference may not be accurate. A fiscal
deficit is mostly geared towards estimating past business results. The predicted return used then
needs to be correct. It's a completely onerous project. If they really want to reimburse for their
employment, then skilled workers should be hired. It is often a rather labour - intensive job and
that as a result, a number of businesses and industries cannot handle the expenditure.
PART B
Participatory budgeting is a system in which expenditures are formulated and depend,
rather than being solely enforced, on input from individual managers. The concept behind this
budgeting technique is to delegate roles to the group and put a sort of exclusive influence in the

budget proposal. This also offers a variety of benefits such as transmission of expert knowledge
from support staff to high ranking manager enhanced job pleasures to supervisors, budget
accountability and observational similarity. The drawbacks include financial lack of continuity
and unfavourable incentives, but the circumstances in which budgeting engagement takes place
decide how the budgeting mechanism is successful (Rikhardsson and Yigitbasioglu, 2018). This
analysis is likely to be much more precise and rational because the boss has prior contact with
the venture but is in the best place to render expenditure forecasts. Financial management almost
always creates an opportunity for managers to evaluate workplace challenges with employees,
where effective communication and responses can assist address conflicts and accept on given
opportunities. Below are some of the disadvantages and benefits of this method of budgeting, as
follows:
Merits: In policy making for this budget, a main benefit is the exchange of information
between personal department-level management and senior management. This ensures senior
supervisory officials are allowed the authority to express their experiences on such management
policies. Authorities get opportunities to talk the challenges they face in preparing budgets and
generating ideas to fix the issue. The top management and also the staff members are thus in a
position to give their views on these questions of importance to the business performance.
Demerits: Budgetary rigidity has been the main drawback as workers undervalue costs /
expenses and/or miss estimates of income as just a way to consolidate an expense account to
about their personal gain. This implies that high ranking managers are expected to establish
priorities that they really are prepared to reach during the next accounting year. It usually occurs
as the success of the management is calculated depending on the accomplishment of the targets.
Managers should be taken as suggesting they have completed their objectives by finding the
target harder to accomplish (Quattrone, 2016).
CONCLUSION
It is assumed in the end that a budget schedule is mostly established for a complete year and over
this period offers information on expected income and associated operational expenditures. In
implementing this method, an company would be able to determine everything they expect to
perform over the year and then monitor the actual results to this original forecast budgeted.

Management accounting proposes various styles that can be applied according to organizational
priorities and organization nature for management of individual organizations.

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