The Importance of Budgeting Within the Engineering Sector - Report Example

Name : xxxxxx Tutor : xxxxxx Title : The Role of Budgeting and Financial Management Course : xxxxxx Institution : xxxxxx @ 2010 Introduction Financial planning deals which is mainly in form of a budget usually outlines on how a firm will measure its spending as well as an evaluation of future performance. A financial plan helps in allocating the returns of the company in regard to its expenses as noted by Hansen et al. (2007). Therefore the engineering sector need to have a well developed financial plan to help in meeting expenses such as utilities also some returns in financing its projects. A plan which is designed to cater for finances by the engineers, will be of great help to the engineering sector since it will help it to indentify the sector’s interaction on how it invests guided by its financing decisions thus making the sector cope effectively with the changing times (Aman and Hildreth 2003). The engineering sector can have a financial plan in form of balance sheet, cash flow statements as well as the income statement which it creates within its business plan. The engineering sector needs s to have a budget from where it lists all its expenses Hansen et al. (2007). This is so since most of the engineering sectors such as those of oil industry which have thrived recently especially in the United Kingdom where most employers are having a great task of recruiting new engineers in the market in vacancies they find hard to fill Greene and Rice (2007). The budget plan for the engineering sector will help it save well and spend wisely. Due to the upsurge in the engineering sector there is a great need for the managers in the sector to incorporate well with the financial specialists to help them understand the secret behind financial planning and the process of budgeting as noted by Aman and Hildreth (2003). For an effective financial development, the engineers need to participate in the process of formulating the plans so as to understand the principles governing the practice. They also need to understand the principles of budgeting as well as the nature of the budgets. When the engineers in the engineering sector clearly understand the importance of the budgeting and how to apply the principles governing it then they will generally improve the overall performance in the sector without necessarily making a consultation from the specialists in the area of financial planning Hansen et al. (2007). The organizational chart below can be of great help in achieving an effective financial management within the engineering sector. Organizational chart for budgeting within the engineering sector One of the main reasons why the engineers need to understand budgeting and the budgeting process is because it helps in providing anticipation for revenues in future as well as expenditures. Through budgeting, engineers will be able to exactly measure the operation of their sector in relation to their anticipation in monetary terms. Engineers need to clearly bring to know –how the following principles governing the practice of budgeting and financial management and how to apply them (Aman and Hildreth 2003). The engineers need to know on how to utilize appropriately the budgetary controls which are applicable to fund source as well as the process of monitoring and justifying the deviations when they occur (Hansen et al. 2007). The engineers need also to be aware of the nature of different types of budgets. This will help them to com up with a budget that exactly suits their sector. They need to understand what cooperate budgets are, what government budgets are as well as personal budgets. The sector in its financial planning it will put into place cooperate budget since it will help in exactly establishing on how the sector will spend future incomes and revenues. If the engineers involved with huge developments do not take a keen note on putting into practice an up to date budget, then the development is deemed to fail. The failure of the engineering sector due to pitiable financial planning which occurs as a result of ineffective budgeting will encompass adverse effects on the sector as argued by Hansen et al. (2007). When the engineers fail to have a good financial management in place, the sector is likely to have cash flow problems therefore to avoid this failure the engineers need to have budget that meets their short term financial needs. The chart below can help in formulating an effective budgeting process. The process of budgeting in financial management as indicated below The engineers need also to have a good financial plan within their reach, failure to which they are prone to wrongly predicting the breakdowns of expenses and takings. The principles take account of; the planning policy principle which entails dynamic process in the engineering sector whereby there is a program on improving the capital, a capital budget is put in place as well as an operating budget according to Hansen et al. (2007). For instance, in the United Kingdom, the oil industry has previously exploited uneconomic oil zones due to the increase in prices of the oils resulting in creation of more jobs in the country. For this particular endeavor of the engineering sector to survive the test of time, a capital improvement program ought to be put in to place which should be structured to efficiently to implement the new plans as well as the expanded facilities in the oil industry Jonathan and Ian (1998). According to Aman and Hildreth (2003), if the engineering sector in the United Kingdom puts into practice the capital improvement program it will help it in reinvesting in aging capital as well as the technology infrastructure thus ensuring that there is continued operation through the provision of safety to the chemical engineers hence no loss of service. The other principle that the engineers in the engineering sector need to put in to consideration is the principle of annual budget plans. This principle requires that the yearly budgets provided by any sector should continuously show the fiscal command of that company or sector. Jonathan and Ian (1998) argue that for engineers to stay put relevantly in their area of operation, they need to have an annual budget that balances between all the projected funds and all the disbursements which it may have within its records. It is exceptionally significant for the engineers to comprehend the law relating to the cash stability without a doubt Jonathan and Ian (1998). For instance, management engineers in the oil industry of the United Kingdom should see that positive cash balances exist in the general fund after the annual budget for a given fiscal year as noted by Aman and Hildreth (2003). The management should take appropriate action if at any given point they find that the operating deficit is likely to be predicted in the present fiscal year in the case where the oil industry has disbursements exceeding the available funds so as to ensure that a positive cash balance is realized. The principle of debt ratios is of great concern to all those who practice financial planning and therefore engineers participating in this practice are not exceptional. This principle includes a net debt which is usually expressed as a percentage of any estimated market value which is mainly estimated to be less than four percent (Hansen et al. 2007). It also consists of a debt service which corresponds to the percentage of the expenditure when they do not exceed ten percent. A good example is the situation where by the engineers concerned with the aerospace of the United Kingdom have the knowledge of projecting future revenues thus being in a position to finance current projects from the existing revenues through the use of a restraint in incurring a long term debt according to the words of Jonathan and Ian (1998). The main purpose of this principle is to ensure that the debts sustained are focus to yearly appropriation and treated in line with general responsibility debt and it should be included in the debt ratio limits. The principle of cash management is paramount to the engineering sector and therefore the engineers to exactly understand on its importance as well as its application as argued by Aman and Hildreth (2003). This principle plays a great task in the development of budgeting since gives the engineering sector a lee way of providing security of its assets as well as ensuring that the sector maintains a favorable return on investment Hansen et al. (2007). According to Jonathan and Ian (1998), for the engineering sector to completely comprehend the significance of budgeting it must put in to place a scheme of internal management of its finances which should be inclusive enough and this principle will help the sector to sustain its integrity of the financial systems. Therefore the engineers are responsible for ensuring that the controls are implemented a well as being scrutinized for efficiency. Finally the engineer’s in this sector who are involved with the development of huge projects need to understand the concept of expanding economy. For instance, the engineers in the United Kingdom in the oil industry need to know exactly on how to diversity the economy in that demanding sector as noted by Jonathan and Ian (1998). When they come up with plans of diversifying the economy the end results will be increased revenue for the country and a boom to the sector. Conclusion Understanding the process and importance of budgeting is a mandatory concept for the engineers involved with huge developments as noted by Hansen et al. (2007). A good financial planning helps in establishing on how to spend well as is in investing since it gives the engineers an opportunity to predict future changes in profits. Therefore all the engineers whether in the oil industry, aerospace or even in structural engineering need to vividly understand the concept of budgeting as well as the principles governing financial management in any business plan as noted by Greene and Rice (2007). Budgeting is an important tool to the engineering sector since it helps stipulate on how expenses are to be handled and where priority is to be given Aman and Hildreth (2003). The engineers should gather enough information regarding financial management as well as budgeting from specialist in the financial world so as to fully participate in the process of financial planning for their sector. They need to understand strategic management since it will help them formulate company policies to the betterment of the engineering sector (Hansen et al. 2007). A good financial plan will help the engineering sector not to fail in its operation because the methods of sustaining the sector will have already been clearly stated in the budget. Therefore the budget acts as a guiding star to the engineers who use it to meet their development goal. . References 1. Don R. Hansen, Maryanne M. Mowen, and Liming Guan. 2007. 6th ed. Cost Management: Accounting & Control. Cengage Learning. 2. Jonathan Simm and Ian Cruickshank. 1998. Construction risk in coastal engineering Thomas Telford. 3. Patricia G. Greene, Mark P. Rice. 2007. Entrepreneurship Education. Edward Elgar Publishing. 4. Aman Khan and W. Bartley Hildreth. 2003. 2nd ed. Case studies in public budgeting and financial management. CRC Press. 5. Steve Sorrell. 2004. The economics of energy efficiency: barriers to cost-effective investment. Edward Elgar Publishing. 6. Sekhar . 2005. Management Control Systems: Text and Cases. Tata McGraw-Hill. Read More