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ncreased interest in research on this topic, and to analyze whether the current approaches of budgeting hinder the effectiveness of modern organizations.
Dynamic Business Environment: The present business environment presents a very dynamic situation in front of the managers. In this scenario, budget is seen as a constraint rather than as a planning tool. As a result of this dynamic business environment, the relevancy of the budget is very short lived. Budges result in centralization of the decision making process. This delays the decision making and reduces and organization’s ability to respond to changing environment. The concept of how a successful company operates in the information age is shifting from “make-and-sell” to “sense-and respond” (Haeckel, 1999).
Budgeting done in isolation: Many managers who are against budgeting believe that budgeting encourages a myopic planning horizon indicating a delinking of the budget and strategy (Shastri, 2008). Budgets are done in isolation and are not aligned to company strategy and goals. Moreover, the budgeting horizon is not linked to the business cycle resulting in long budgeting periods in rapidly changing industries and short budgeting periods in extremely dynamic industries.
Hinders Innovation: The bureaucracy and controls created as a result of the budgeting process stop the culture of challenging the status quo. Most of the units focus on operating within the budget thereby reducing the chances of innovation. Most of the subunits focus on operating within their own budgets and hence do not take innovation as a philosophy (Hope and Fraser, 2001).
Expensive: It is often argued that the budgeting process followed at organizations is inefficient. This results in the wastage of time of the senior management. Budgeting is also an expensive exercise in terms of capital required for the budgeting purpose.
Sophisticated Budgeting Techniques: With the drawbacks of the budget and the budgeting techniques,
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The process of budget preparation is often complex as it requires inclusion of various aspects of the financial nature an organization. Budgets are mostly prepared during the late periods of a given financial year in order to depict the costs of the intended programs by the planning committees of given organizations The main aim of this paper is to answer questions of what factors and consideration are taken into account while preparing a budget and future prospects of the budget.
This should be followed by an analysis of what is needed for the coming year and how it will be financed if necessary. Each department should conduct a detailed review of their needs and wants and categorize all of them according to importance. The process is important because it is necessary to make sure a set plan is followed that includes everyone.
The common types of budget are performance budget, cash budget and budget fore cast. Performance budget is based on anticipated revenues and expenses that are anticipated to be incurred in the future (Millett, 2011). Cash budget predicts how the available revenues will be utilized to accomplish a project (Millett, 2011).
Budget Plan Analysis. This document provides a flexible budget for Microsoft Company and further studies growth rate, sales, interest and tax burden of the company. It further analyzes the performance of the company with its peers and competitors. In order to regulate the budget plans the company follows two major types of budget plan.
Accommodation - Although only 100 rooms will be constructed with private balcony against 130 rooms without that facility, upon considering the preference of the three age groups, I chose to have the rooms with open porches. A breath of fresh air, adequate sunlight and a good view has been proven to have an affect on fast recuperation.
It consists of a Pro Forma Income Statement, Pro Forma Balance Sheet and Cash Budget. Other budgets included in the master budget are the sales, production, direct materials purchases, direct materials usage, direct labor, factory overhead, ending inventories, cost of goods sold, selling expenses, administrative expenses, operating expenses, and capital budget.
"The amount of uncertainty varies with the lags between measures and their impact on economic performance, and the volatility of the business environment. This uncertainty notwithstanding, it is critical for firms to draw inferences about economic performance from the kinds of performance they can measure.
The paper tells that the current year’s expenses will increase due to increasing cost of living. This understanding is important in incorporating the new changes that need to be included in the current budget forecast. The acknowledgment of the need to identify varying revenue sources benefits the future budgets by making them progressive.
As a result various organizations have a developed a training program that will ensure they get the best individuals that will increase efficiency. However the training initiative will make the company to incur an extra cost and thus do require a