Question

Budgets are the driving force behind all organizations. Whether a manufacturing organization, or a service organization such as a medical or public accounting firm, budgets are used not only for planning purposes but also for performance monitoring and evaluation of areas within an organization.

More than likely, you are often required to work with budgets within your organization. Using the module reading and the Argosy University online library resources, research budgets including multiple budgets.
Respond to the following:

Describe in detail the budgets that you work with.

In your description, what was the objective of the budget i.e., to motivate employees or control costs? (A budget could have more than one objective.) Was the use of the budget successful in achieving the objective?

Based on the effectiveness of the budget, what recommendations would you suggest to improve the communication and/or utilization of the budget(s)?

Assume your organization has multiple budgets and you are to work with these. Explain how these budgets should be linked together.

Answer 1

1.

A budget is a financial plan for a defined period of time, usually a year. It may also include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. Companies, governments, families and other organizations use it to express strategic plans of activities or events in measurable terms

A budget is the sum of money allocated for a particular purpose and the summary of intended expenditures along with proposals for how to meet them. It may include a budget surplus, providing money for use at a future time, or a deficit in which expenses exceed income

A budget helps in planning actual operations by forcing managers to consider how the conditions might change and what steps should be taken now, and by encouraging managers to consider problems before they arise. It also helps to co-ordinate the activities of the organization by compelling managers to examine relationships between their own operation and those of other departments. Other essentials of budget include:

To control resources

To communicate plans to various responsibility center managers

To motivate managers to strive to achieve budget goals

To evaluate the performance of managers

To provide visibility into the company's performance

For accountability. 2. Many companies go through the budgeting process every year simply because they did it the year before, but they do not know why they continue to create new budgets. What are the objectives of budgeting? They are: Provide structure. A budget is especially useful for giving a company guidance regarding the direction in which it is supposed to be going. Thus, it forms the basis for planning what to do next. A CEO would be well advised to impose a budget on a company that does not have a good sense of direction. Of course, a budget will not provide much structure if the CEO promptly files away the budget and does not review it again until the next year. A budget only provides a significant amount of structure when management refers to it constantly, and judges employee performance based on the expectations outlined within it. Predict cash flows. A budget is extremely useful in companies that are growing rapidly, that have seasonal sales, or which have irregular sales patterns. These companies have a difficult time estimating how much cash they are likely to have in the near term, which results in periodic cash-related crises. A budget is useful for predicting cash flows, but yields increasingly unreliable results further into the future. Thus, providing a view of cash flows is only a reasonable budgeting objective if it covers the next few months of the budget. Allocate resources. Some companies use the budgeting process as a tool for deciding where to allocate funds to various activities, such as fixed asset purchases. Though a valid objective, it should be combined with capacity constraint analysis (which is more of an industrial engineering function than a financial function) to determine where resources should really be allocated. Model scenarios. If a company is faced with a number of possible paths down which it can travel, you can create a set of budgets, each based on different scenarios, to estimate the financial results of each strategic direction. Though useful, this objective can result in highly unlikely results if management lets itself become overly optimistic in inputting assumptions into the budget model. Measure performance. A common objective in creating a budget is to use it as the basis for judging employee performance, through the use of variances from the budget. This is a treacherous objective, since employees attempt to modify the budget to make their personal objectives easier to achieve (known as budgetary slack). 3. Forecasting accuracy can improve with the proper blending of process improvements, organizational change and new tools. The first step is defining the process, followed by assigning roles and responsibilities and, finally, selecting the tools needed. Overemphasis on any one can lead to an imbalance that can impact results. 4. If I am in a company where various budgets are created so my first view is it should be linked with together. Once they are linked with together the efficiency of work done will improved. we easily can find out how much work has done & how much still pending. who is doing their job properly & who is not. with the help of budget we can improve the result of the organization.