Question

Explain the basic principles and tools of budget and resource management

Answer 1

Budget is a systematic financial plan or target for execution of a full work.

Basic principles are as below:

No.1) Reasonable: A budget must be prepared in a way that it could be attained in future. Therefore it becomes realistic and reasonable. There must not be any vague budget figure like a sales target of 500% increase in one year.

No.2) Objectivity: The purpose of a budget must fall under organization’s objective. Suppose the objective is to make profit without increasing the selling price of product. This could only be done if cost minimizes. The budget is prepared accordingly.

No.3) Scarcity of resources: Factors of production like land, labor, and capital are limited in the short-run. These can’t be increased in anyway; therefore, the principle is to prepare a planned budget for minimizing waste.

Tools are as below:

No.1) Spreadsheet: This is the excel format in computer where a budget like production budget, sales budget, master budget, cash flow budget, etc can be prepared. This is the basic budgeted tool, because it is widely used.

No.2) Manual budget: This is with the help of pen and paper. Those who are not so familiar with computer technology can prepare their budget in this way.

No.3) Simple note: This is the process of watching. Through a simple watch of expenses and items over a period or so by taking notes in a notebook, a person can get ideas about upcoming happenings. The budget could be prepared through such noting.