Question

To what extent are budgets useful to organizations? Discuss why managers often complain about the budgeting process. Provide practical and relevant examples to support your answers.                                                                                           

Answer 1

Answer

Usefulness of Budgets to organisation

Budgeting is the basis for all business success. It helps with both planning and control of the finances of the business. If there is no control over spending, planning is futile and if there is no planning there are no business objectives to achieve.

A budget is a plan to:

• control the finances of the business
• ensure that the business can fund its current commitments
• enable the business to meet it objectives and make confident financial decisions; and
• make sure that the business has money for future projects.

The benefits of budgeting should never be underestimated when running a business:

• budgeting estimates revenue, plans expenditure and restricts any spending that is not part of the plan
• budgeting ensures that money is allocated to those things that support the strategic objectives of the business
• a well communicated budget helps everyone understand the priorities of the business
• the process of creating a budget provides opportunities to involve staff, resulting in them sharing the organisation’s vision; and
• engaging the team in reviewing and comparing the budget with actuals can provide information that highlights the strengths and weaknesses of the business.

If you’re running your business without a proper budget you may find you’re actually just running around in circles and not meeting your long-term goals. By taking the time now to set a budget, you will free up time in the future and give yourself the best chance of achieving the rewards you want for your hard work.

Complaints about budgeting process

1. The first complaint relates to the budget preparation period. The necessary time to build a budget is 1-2 months for 40% of enterprises and 3-4 months for 31% of them. This period is considered too long.

Budget negotiations between the various departments drag on, decisions are delayed. The budget is sent from the general manager to the financial manager, who sends it with changes to departments involved, which in turn modify it.

It has been noted that the more the turnover is increased, the longer the period for budget construction is, fact explained by all parameters that a company with a high turnover is required to consider when budgeting.

2. A second complaint related to the budget process refers to the large number of tables required by senior management, to their level of detail, to the existence of too many differences from one service to another within the structure of tables, considering that general management requires too much information without taking into account the actual usefulness of these tables later, these being sometimes disconnected from the realities on the ground.

3. The third reason for dissatisfaction is linked to the budgetary procedure. Typically performed by the management control service, it is often difficult, hard to use or modify. In many companies it does not exist. It has been found that companies which have a written budget procedure are those with high turnover

4. The fourth complaint is related to the program. For most people respecting a program proves to be a constraint. Persons involved in the development of budgets spend too much time and waste too much energy to produce them. They believe that it is sometimes difficult to devote time to preparing the budget because, for a few months, this task is added in addition to their daily work.

5. Another reason for dissatisfaction is the difficulty of obtaining essential information and its processing mode. Often the transfer of information from one service to another is difficult.