Budgeting Report: Roles, Types, and Participative Budgeting Analysis

This report provides a comprehensive overview of budgeting, emphasizing its critical role in business operations, particularly in a dynamic environment. It explores the significance of budgeting in estimating revenue and expenditure, creating action plans, comparing outcomes, providing guidance, and facilitating forecasting and decision-making. The report differentiates between static and flexible budgeting styles, highlighting the advantages of flexible budgeting in adapting to changing market conditions. Furthermore, it discusses participative budgeting, analyzing its advantages, such as increased employee ownership and information sharing, as well as its disadvantages, including potential time consumption and the risk of inaccurate estimations. The report concludes by underscoring the importance of implementing the appropriate budgeting method to ensure business success and adaptability.

Budgeting

TABLE OF CONTENTS
REFERENCES...........................................................................................................................7

Budgeting mainly refers to the process in which the plan is created in regard to the
expected amount to be incurred. This is created by the management for the purpose of
determining the amount of money it requires in addition for carrying out its plan more
effectively. Budgeting is very important for the businesses as based on this various business
decisions are being undertaken.
Role of budgeting in changing environment
There are various roles being played by the budgeting which is advantageous to the
management in various aspect resulting in improved and enhanced decision making. Some of
the most important role being played by budgeting is stated below.
Estimating revenue and expenditure: In the changing market condition, it becomes
very important for the organizations to identify and the analyse the changing patterns and
trends which is having a direct impact over the business functioning (Scott and Enu-Kwesi,
2018). Thus, estimating the revenue that the company will be generating in the future period
is completely based on the analysis and this results into taking effective business decision in
regard to the revenue and expenditure that the business might be required to incur in the
future.
Action plan: The budgets prepared is used as the action plan by the management
which is majorly developed for the purpose of accomplishing the estimates which has been
reflected in the budget in a far better manner (Henttu-Aho, 2016). Once, the budget is
created, it is used as the guide by the management in implementing its plan and in ensuring
that everything is going as per the plan and the budget.
Comparing the outcomes: The important role of budgeting is to comparing and
contrasting the outcomes of the organization’s plan. The actual and budgeted outcomes are
compared by the management of the organization with the aim of identifying the areas where
the actual deviates from the budgeted one (Kenno, Lau and Sainty, 2018). This provides
support to the management in determining the causes of such deviation so that timely actions
can be taken in order to ensure that everything works as per the plan. This results into further
improvement in the plan which will help in achieving the results more accurately.
Providing guidance: Budget is used as the guide by the managers which helps in
taking effective decisions on account of sudden change in the plan because of the change in
the external factors of the business which is not in the control of the business. The external

factors have a huge influence over the business functioning which makes it very crucial for
the organization in determining the factors and the degree of influence of its over the business
plan. Thus, budgeting helps the management in making relevant changes in the budget as per
the requirement and therefore, resulting into the better performance and improved decision
making leading to achievement of the desired goals.
Forecasting and decision making: After creating the budget and taking it as the basis
makes it useful for the organization’s management in conducting forecasting about the future
revenue and accordingly the expenditure that the company would be required to incur in
relation to it, is also estimated but everything is done within the budget created
(KUROCHKINA and et.al, 2019). There, budgeting helps in exercising control over the
expenses of the organization which results into better operational functioning of the
organization.
Control over the expenses: As and when the budget is being created, it helps in
determining the cause that will affect the business functioning (PRIYA, 2020). Along with
that it will result into evaluating the cost that the business is required to incur and comparing
it with the amount the business is currently having which results into putting a limit over the
business and control over the cost.
There are mainly two types of budget style which can be used by the organization,
one is static budget and the other is flexible budget. Static budget incorporates the figures in
respect to the input and the output before the period starts. It provides a forecast about the
sales and expenses for a specific period. The important factor that makes it different from the
flexible budget is that it remains same irrespective of whether there is increase or decrease in
the cost of material, sales volume or the production capacity (Maduekwe and Kamala, 2016).
There are more chances of deviation when the actual outcome is being compared with the
budgeted figures under the static budgeting style. This budget is completely intended to be
fixed and to remain unchanged for that particular period even if the final outcome is being
affected by it. Thus, style of budgeting is mainly used by the managers for the purpose of
targeting the expenses, costs and others use it for carrying out the budgeting (Rogulenko and
et.al, 2016).. On the other hand, flexible budgeting style is different from the static budget as
it changes with the variation in the any of the factor affecting the business in respect to the
production level, cost of material, labour cost and so forth (Ozyurek and Uluturk, 2016). This
is also useful in enhancing the efficiency level of the managers as it is completely set to

benchmark the actual performance level of the organization. It is useful in both planning and
the controlling purpose and is mainly utilized for estimating the factory cost and the
operational cost. This budget is considered much more realistic as compared to the fixed
budgeting styles and also it gives more emphasis on the changing behaviour of the cost
element at the varied levels of business activities (Radonić, 2018). While preparing this
budget, the managers of the organization were forced to take into account the various factors
and the scenarios along with their responses and therefore, for each such situation, the
managers are required to determine the cost and the revenue. In the situation of any uncertain
event or circumstances that arises relevant changes can be made in the budget and the
management can be better prepared for the same.
Therefore, based on the two styles of budgeting, it can be said that in the given
scenario of the technology age where there is a need for real time decision making in order to
attain success and remain competitive in the market it will be beneficial for the businesses to
make use of flexible budgeting as with the changing environment, there are times when the
opportunity arises which cannot be forego because of the budget which cannot be changed
affecting the growth of the company. Thus, flexible budgeting will provide support to the
organization in taking effective decisions by transforming the medium term plans into the
short term plans.
Participative budgeting
Participative budgeting refers to the process in which the budget is being prepared
involving the people from the lower level of the organization as well in providing inputs for
the budgeting process. Unlike other forms of budgeting, this budgeting practice work son
sharing responsibility with the managers of all level of the organization with the objective of
giving them a sense of ownership in the organization (Kahar, Rohman and Chariri, 2016) It
tends to create the budget which is more likely to be achieved as the low level employees can
provide better information to their supervisors on account of the areas where there is more
requirement of the funds.
Advantages: The most important merit of this budgeting process is the sharing of
information across the various department levels till the top-level management. This means
that it provides an opportunity to the subordinates for presenting their views over the
organizational issues (K Chong and Strauss, 2017). It provides sense of ownership among the
employees which motivates them to work even better as they feel appreciated which

improves their morale. There is an agreement of goal congruence in between the employee’s
goals and the company’s overall goals. In order to achieve and achieve the budget that meet
with the goals of the both it is important for both of them to work in the same direction and
this is so happening in this budgeting process.
Disadvantages: This budgeting process is very time consuming as it initiates from the
departmental level and then reaches to the top level and too much participation leads to delay
in the process as negotiation will take lot of time in coming at the conclusion (Arsalan and
et.al, 2018). There are also chances that the employees might overestimate or underestimate
the cost or the revenue projects as one of the ways of misleading the budget. Even the
subordinates might set the targets which are very easily achievable which is mainly happens
when the performance is measured on the basis of the targets.
Therefore, it can be summarized from the above that it is very important for the
businesses to effectively make use of budget in their business functioning in order to ensure
success or reduce the chances of facing failure. There are various external factors that affects
the business thus, it becomes very crucial for implementing the right budgeting method such
as flexible budgeting for meeting the regular changing business environment which are not in
the control of the management but the timely precautions can be taken for facing it ina n
effective manner.

REFERENCES
Books and Journals
Arsalan, S. and et.al, 2018. Effect of participative budgeting, organizational commitment and
work motivation on managerial performance (survey of motor vehicle dealers in
Bandung). International Journal of Engineering & Technology. 7(4.34). pp.240-244.
Henttu-Aho, T., 2016. Enabling characteristics of new budgeting practice and the role of
controller. Qualitative Research in Accounting & Management.
K Chong, V. and Strauss, R., 2017. Participative budgeting: the effects of budget emphasis,
information asymmetry and procedural justice on slack-additional evidence. Asia-
Pacific Management Accounting Journal (APMAJ). 12(1). pp.181-220.
Kahar, S. H., Rohman, A. and Chariri, A., 2016. Participative budgeting, budgetary slack and
job satisfaction in the public sector. Journal of Applied Business Research
(JABR). 32(6). pp.1663-1674.
Kenno, S. A., Lau, M. C. and Sainty, B. J., 2018. In search of a theory of budgeting: A
literature review. Accounting perspectives. 17(4). pp.507-553.
KUROCHKINA, A. A. and et.al, 2019. Management features of small and medium-sized
business enterprises. Revista Espacios. 40(34).
Maduekwe, C. C. and Kamala, P., 2016. The use of budgets by small and medium enterprises
in Cape Metropolis, South Africa. Problems and perspectives in management, (14,
Iss. 1 (contin)). pp.183-191.
Ozyurek, H. and Uluturk, Y., 2016. Flexible budgeting under time-driven activity based cost
as a tool in management accounting: Application in educational institution. Journal
of Administrative and Business Studies. 2(2). pp.64-70.
PRIYA, S., 2020. A STUDY ON THE IMPORTANCE OF BUDGETING IN AN
ORGANISATION. Studies in Indian Place Names. 40(46). pp.500-505.
Radonić, M., 2018. Beyond budgeting: Gaining competitive advantage through strategic
changes in budgeting processes. Megatrend revija. 15(2). pp.141-158.
Rogulenko, T. and et.al, 2016. Budgeting-Based Organization of Internal
Control. International Journal of Environmental and Science Education. 11(11).
pp.4104-4117.
Scott, G. K. and Enu-Kwesi, F., 2018. Role of budgeting practices in service delivery in the
public sector: A study of district assemblies in Ghana. Human Resource
Managentresearch. 8(2). pp.23-33.