Analyzing the Role of Budgeting in Business: A Detailed Report

This report delves into the crucial role of budgeting in business, emphasizing its importance for financial planning and strategic decision-making. It begins by defining budgeting and highlighting its function in projecting income and expenditures, using Softconic, an IT company, as a case study. The report examines the relationship between budgeting and short-term plans, detailing how various budgeting methods, such as static and flexible budgeting, facilitate effective management. It analyzes the advantages and disadvantages of each method, providing practical insights for business applications. Furthermore, the report explores participatory budgeting, discussing its merits and demerits, and how it fosters collaboration and knowledge sharing within an organization. The conclusion reinforces the significance of budgeting as a tool for financial control and achieving organizational goals.

Role of budgeting

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Part A......................................................................................................................................3
Relation among shorter term plans and budgeting:................................................................4
Part B......................................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Budgeting is method of glancing at the projected income (the funds that emerges into the
company through sale of goods and services) and spending’s (the money going out in the context
of the payment of bills and wages) in the long term over a particular period. It helps a company
to recognise that with these estimated earnings and investments manager will be wealthy enough
to afford and run their business at expected pace. Softconic is an IT company which is selected in
this report; it produces word processing software for computers alongside a range of other
collaborative applications.
The report cover, importance of budgeting, types of budget and the most important budget
for Softconic which will help to survive profitably in pandemic situation.
MAIN BODY
Part A
The principle of budgeting is a critical element in the performance of any company.
Management makes recommendations on whether to move on by budgeting that can be carried
out by individuals or teams, depending on the organization's composition and difficulty.
Budgetary control is the foundation of any effective company development strategy by
predicting sales, setting priorities and allocating capital to various outlets. Thus, the first aspect
of spending plan offers is a broader perspective for the management team. An assessment of
whether the company is located must be taken before further warning is made. Budgeting's
primary function is only to develop both short and long-term plans. Budgeting plays a key role in
reshaping medium-term proposals into shorter-term proposals, thereby enabling strategic
decisions to leverage on shorter-term opportunities and possibilities because no business will
remain stuck (Otley, 2016).
Through constantly analysing the current state of the company, executives have the ability
to see at the company's prospects. Budgeting enables project leaders to evaluate what type of
growth would be practicable. Every budget will make strategic sense in the lack of a broader
business reform strategy and make better use of such plan in the context of Softconic. Every
budget must come from inside the framework of corporate strategy, which helps managers to
consider what other form of market place the firm holds, what is the customer base of the

organization, how business could expand, as well as what kinds of measures ought to be taken
(Vlachy, 2018).
Relation among shorter term plans and budgeting:
Budgeting method and shorter-term preparation or decision-making are important to the
success of company in dynamic business situation. This is so with the assistance of different
types of budgets, managers may gather vital information on various topics. The financial plan for
example provides an overview of the total proportion of income and expenditure. This awareness
can lead to disciplinary actions in the year ahead. Like in the aforementioned Softconic it
company their managers make short-term judgement and schedules based on information
obtained by various ways of budgeting. Several of the primary features of the budget preparation
are that there are also a number of proposals, dependent on the intent of the project. Managers of
respective company are recommended with various budgeting methods for managing specific
market activities (Hiebl and Richter, 2018). Here, administrators can make fast strategic choices
by following a particular budgeting method. Good decision making allows them to translate their
medium-term marketing strategy into short-term plans. There have been 2 key budgeting
methods mentioned in the context of Softconic as follows:
Static-budgeting style: The expenditure plan estimate the capacity phase of company as
per the fixed budgeting style. This is usually employed by businesses that are fixed mostly doing
business in similar patter, although this budget is fixed throughout the year. Additionally, units
with capacity-independent activities can use this type of budget. In Softconic, general
manager and software administrative usually focus on delivering of best serviced and software
application to customer; as a result, these divisions that use static budgeting form (Honggowati,
Rahmawati, Aryani and Probohudono, 2017). This form of financial planning has certain
advantages and drawbacks which are described as follows:
Advantages:
The major benefit of static budget is that it is hard to adjust and implement because set
expenditures plan do not need to be changed frequently mostly during financial period they are
intended to represent.
Disadvantages
An absence of suitable versatility is the big downside of rigid budgeting. If an organization
creates a budget depended on a specified amount of profit, so if turnover increases, it will not be

feasible to invest additional funds on sustaining. If a company considers services or revenues to
be under-performing, it could not devote extra money to assist with budgeting (Bromwich and
Scapens, 2016).
Flexible budgets: This style is versatile, because the budget here seems to be at actual /
overall capability level. Since adaptive budgeting is fluid, companies also make use of this. A
budget estimate is adjusted to the real activity of the business. The broad set of events for the
current year is primarily influenced. First, it calculates the expected costs to be incurred over a
given duration. Both costs can then be divided according to their expense behaviours: set,
adjustable, or combination. Finally, the adjustable budget for the operating expenses in the broad
spectrum is calculated at different stages. (Bui and Hopper, 2016). Here are some main
advantages and drawbacks of this kind of money management, as follows:
Benefits: This can help in assessing revenue, expenses as well as profitability at different
operating production cost. This helps in deciding the quantity of product / outcomes to be
produced to help businesses aims and targets profit levels. The much more key benefit of this
financial planning is whether this enables company to evaluate level of production under
different government and business situations. This also allows to categorise the various
operation budgeted costs in accordance with income, so that managers can properly understand
the gains fields and therefore act appropriately.
Disadvantages: This type of budgeting relies upon careful account reporting. The
conclusion could not be correct if there were any errors reported in the accounting reports. A
budget deficit mostly focuses on the estimation of past financial performance. Hence, the
expected return used must be accurate. It is a very onerous mission. Skilled workers ought to be
hired if they want to pay for their jobs. This is also a very laborious task and as a result, the
budget cannot be managed by many companies and sectors.
Part B
Participative budgeting is a mechanism in which budgets are prepared and rely on specific
managers' contributions, instead of being strictly implemented. The idea behind all this
budgeting strategy is to assign tasks to the team and place in the new budget some form of
exclusive control. This also provides a number of advantages including expertise transfer from
assistants to senior increased work pleasures to subordinates, budget transparency, and analytical
congruity. The pitfalls include budgetary lack of coherence and negative opportunities, but the

conditions in which participation budgeting takes place determine if the budgeting process is
efficient (Rikhardsson and Yigitbasioglu, 2018). That interpretation is likely to be even more
accurate and logical because the supervisor has direct experience with the project and in the
strongest position to make estimates of the budget. Participatory budgeting often provides
administrators with the opportunity to discuss organizational issues with subordinates, in which
knowledge-sharing and feedback can help to resolve problems and agree on strategic steps. Here
are some disadvantages and advantages of this budgeting type, as follows:
Merits: A primary advantage in participatory budgeting is the sharing of information from
individual department-level managers to top management. This guarantees that the right to share
their views on these organizational issues is granted to senior overseeing officials. Officials also
get a chance to discuss the problems they encounter in budget preparation and brainstorming
ideas to resolve the issues. Hence, the upper management as well as supervisors are in a situation
to share their opinions on such issues of interest for growth of company.
Demerits: Budgetary inflexibility seems to be the main downside because employees will
underestimate costs / expenditures and/or miss revenue projections as a way to leverage an
expenditure plan to their personal gain. This means senior managers are expected to set targets
that they are likely to meet and even achieve during the next financial year. This typically occurs
because the management's performance is measured on the basis of goal achievement.
Administrators will be seen means having accomplished their targets of making the objective
easier to meet (Quattrone, 2016).
CONCLUSION
In the end, it is concluded that an expenditure plan often set up for a full year and provides
statistics about planned profits and related operating expenses during this timeframe. By using
this strategy, an organization will see how they plan to do during the year and therefore can track
the real outcomes against this initial estimated budged. Management accounting recommends
various types that can be adopted by managers of specific organisations according to corporate
objectives and company design.

REFERENCES
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