Budgeting is a key component in management short and long term planning - Essay Example

Budgeting helps in figuring out the issues that are faced by the organization and the stakeholders of the organization (RICH, 2012, p.970). This done by finding the difference between the actual outcomes and the budgeted outcomes, if the actual outcomes are not consistent with the budgeted outcomes, the organization is said to have been experiencing issues that need to be resolved. Budgeting is a means through which alternatives are identified and analyze this is done to find the best alternative which will end up in providing fruitful results to the organization.

Budgeting is an essential element in the planning role played by the management of an organization. It plays a key role in creating plans that are short and long term in nature. Both the short and long term goals of the organization are of great importance. The achievement of the long term goals is entirely dependent on the successful achievement of the short term goals of the organization. Short Term Planning A manager is involved in the process of making both short and long term planning. The plans that are created for a shorter period of time are created while keeping a deadline of one year or as long as two years in mind (SPEARMAN, 2007, p.194). The plans are created while analyzing expectations of earnings, cash inflow and outflow and expenditures conducted to obtain resources.

The plans may be created for as long as one single month or even for as low as one single week. Short term plans created within the organization are heavily dependant on information obtained within the organization and these plans consists of detailed information of tactical objectives that an organization aims at achieving. The short term plans are well structured and hardly experience change with changes in environment, the outcomes of these plans are easily determinable and the outcomes can be analyzed quite frequently (NIEUWENHUIZEN, 2007, p.61). The plans of revenue earning and profit making that are short term in nature are devised in accordance to the current products offered by the organization and the current market in which the organization is operating.

Short term profitability programs should be developed in accordance to different responsibilities and areas. Plans that are short term in nature are dependent on departments and all departments create their own short term plans. Once short term plans for each department is created, all the short term plans are viewed and reviewed together as all functions/departments are dependent on each other for their success. For the creation of short term plans, involvement of lower level managers is quite significant.

Line manager is one of the lower level managers who play the most important role in defining the short term objectives and short term plans should be finally devised with the ultimate aim of achieving long term targets of the organization. Long Term Planning The nature of the long-term planning is quite strategic and it covers a broad range of purposes. This kind of plan is scheduled to be completed within five to ten years of operations and it is formed in accordance to the future operations of the organization.

These plans are not only based on the conditions of the internal environment of the organization, they are created while giving importance to the external environment which includes the