Question

How exactly does a business allow the budgeting process to trickle down?

Answer 1

1. Budgets provide a means of co-ordination of the business as a whole because -

- in the process of establishing budgets, the various factors like production capacity, sales possibilities and procurement of material, labour, etc are balanced and co-ordinates so that all activities proceed according to the objective. For this purpose, a budget committee is formed which includes all departmental heads together to solve a common problem

The need of co-ordination in the planning process is immense. The interrelationship between the functional budgets (e.g. sales, production, purchasing) means that one budget cannot be completed without reference to several to several others.

2. Improved Quality of Forecasts to use as the basis of budget -

Managers who are doing a job on a day to day basis are likely to have a better idea of what is achievable, what is likely to happen in the forthcoming period, local trading conditions, etc.

3. The area of wasteful expenditure can be easily identified and eliminated.

4. Departmental budgets are closely linked with corporation objectives.

5. Improved Motivation -

Budget holders are more likely to want to work to achieve a budget that they have been involved in stting themselves , rather than one that has been imposed on them from above.

6. Better results -

Being the executor of the budget, the applicant can control the costs better than any other manager.