Theory of Budgetary Processes - Coursework Example

Budgeting is a tool that can measure the success of the business, its rate of growth, and the possibilities of further future development. Business planning, being one of the internal processes, can be made more successful if the business prevents any implications and problems in the projects and practices it's been planning. Budgeting helps these processes most effectively by managing the cash flow and helps you to decide when to invest in which project you have planned at the right time which will produce the best results.

All during business planning, a budget plan helps to control the finances, gives you assurance whether you can fulfill your ongoing commitments or not, helps you to decide the best financial decision which fulfills your objectives, and last but not least, it helps to plan and gives you estimation regarding the money you can spend on your future expansionary plans. Budgeting should not be mixed with forecasting because, unlike a forecast, budgeting is a ‘planned’ outcome that the business thrives to get to its achievement (Peterson and Fabozzi, 2002).

When comes to business planning, also includes one of the most technical business tasks which is decision-making. Budgeting improves this decision-making process because it gives you a clear-cut idea that which plan is practical and which can be fulfilled with the finance in hand. With the help of effective budgeting skills, a business can never run out of cash, or even if some issues are detected in cash flow, they can be easily found and fixed in time. This gives a deep understanding of the relationship between budgeting and business planning (Peterson and Fabozzi, 2002).
These two benefits the business if done effectively and efficiently together. Budgeting being the provider of control and accountability over the finances and revenues of the business aids business planning and makes it successful. The reasons behind planning are fulfilled with the help of making a budget but it never helps the most when it comes to business control. This is an entirely different thing and cannot be related to budgeting. The above explanation illustrates how budgeting can be a great help in planning and it doesn’t play any vital role in business control.

With the help of Capital budgeting, the evaluation of investment proposals can be done easily in the best possible way. Such a type of budgeting helps a business to decide which proposal should be ranked first so that it can be undertaken and investment can be made in it. For any investment, a business needs a proper financial plan because it will be the business’s finances and capital returns which will be invested, and benefits in the future will be gained and as budgeting is a part of financial planning, so without it, an investment proposal cannot be evaluated (Wildavsky, 1996).

When it comes to evaluation, the first thing to do is to come up with all the possible strengths and weaknesses of a specific proposal, and when it comes to investment, the business has to be careful and should dream of only fulfilling those proposals which can be undertaken and come in the boundary of business’s finances. In capital budgeting, the speed of the evaluation process gets geared up as by using this method; those proposals are top-ranked and include no real choice for example replacing a leaking sewer line with an updated one, as this one will remove any safety hazard and code violation. So, in this way capital expenditures are ranked according to their profitability and feasibility to the business, helping in evaluating multiple investment proposals at a faster speed. Several budgeting models have now been used by many businesses which help evaluate investment proposals like net present value, payback, accounting rate of return, and internal rate of return.

These models help in ranking capital expenditures and evaluating investment proposals is all about finding which expenditure will suit the business and at what time i.e. the sequence in which it will be undertaken. Investment proposals, if selected sensibly can become the reason for a business’s drooling success and development in the future. Clever investments can double the returns to the business, so deciding on the best proposal is all it takes. Making the right choice technically, after reviewing the ability of a business to invest in the upcoming proposals, is all about doing the task of evaluation efficiently and effectively, and this only becomes possible with the help of budgeting i.e. capital budgeting.