Question

What are the factors that contribute to a successful budgeting process?

Answer 1

For a budgeting process to be successful, following factors are taken into consideration:

• Accurate Forecasting:

Forecasting is a prerequisite in any budgeting process. It is not only essential in kick starting a process, but is also critical to the development of an appropriate and accurate budget.

• Coordination of Business Activities:

The main objective of budgeting is to coordinate all the individual budgets into a full fledged plan such that each budget has certain implication for the other budgets. Hence, a coordination between sales, production, purchasing and personnel budgets is a must.

• Effective Communication:

A successful budgeting process depends upon an effective communication of all the individual budgets to the different units of the organisation. The preparation of the budget is of no value if the person for whom it is meant is unaware of it. Hence, a budget must be communicated clearly, concisely and in an authoritative manner.

• Acceptance:

Successful budgeting also requires that budgets should be well accepted by the people who are deemed to execute them. Budgeting should involve cooperation from entire organisation from the top to the bottom.

• Flexibility:

A budget should contain reasonable flexibility so that it can adjust according to the situation. Since a budget is prepared before had, it must have the room for unforeseen events. However, too much flexibility and too much rigidity are both harmful. Excessive flexibility weakens the cost control whereas, excessive rigidity restricts the implementation of a budget. If conditions demand, the budgets must be revised.