Accounting for Managers
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“Budgeting is a key component in management
short and long term planning.”
Budgeting is a financial document used to project future income and expenses. This process may be carried out by companies to estimate whether the company can continue to operate with its projected income and expenses. When used effectively, the technique will result into a systematic and productive management. It provides control, communication and motivation to employees as well as assisting in allocating funds that contributes in the planning. Planning determines the activities to achieve the desired goals and objectives. It may be short term, intermediate or long term but it is needed so that a company can operate its departments and segments successfully(Ref. textbook, Budgeting Basics and Beyond, Jae K. Shim, Joel G. Siegal, Allison I. Shim, Fourth Edition 2011).
Budgeting is a financial document used to project future income and expenses. This process may be carried out by companies to estimate whether the company can continue to operate with its projected income and expenses. When used effectively, the technique will result into a systematic and productive management. It provides control, communication and motivation to employees as well as assisting in allocating funds that contributes in the planning. Planning determines the activities to achieve the desired goals and objectives. It may be short term, intermediate or long term but it is needed so that a company can operate its departments and segments successfully(Ref. textbook, Budgeting Basics and Beyond, Jae K. Shim, Joel G. Siegal, Allison I. Shim, Fourth Edition 2011).
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The benefit of budgeting and planning is that it provides a frame work for delegation. It also enables employees to see the overall picture of the direction the organization is heading which can help motivate staffs. Budgeting also exercise control over a business because it represents a plan for the business. It put long term plans into an exercise for the immediate future to plan for the most economical use of the organization’s resources and capital In a profitability review, a properly structured budget identifies what aspects of the business produces money and which one uses it. The foremost benefit to budgeting is the increased control and details that the manager obtains when creating a budget. It enables managers to analyze the difference between planned and actual outcomes. This will help managers to carry out precise procedures to correct any negative variance towards achieving their initial budget. Budgeting layout can emphasize issues and fiscal controls to help prevent overspending; it can call attention to efficiency or effectiveness issues to improve management (Ref. Ebook, Shah Anwar, Local Budgeting, 2007)
However, budgeting plans are not problem-free. Major problems can occur when budgets are applied mechanically and rigidly as they are simply unachievable in the first place. Rigid budget structures may also reduce initiatives and innovation at lower management levels, making it impossible to obtain new ideas that can garner more money for the business. It can also create competition for resources as staff time is devoted to budget making – this carries a threat for real opportunity cost. Errors and inaccuracies which are unavoidable will always remain since it is impossible to predict the future events such as rising prices or global recession that may distort the whole process (ref. businesscasestudies.co.uk, THE TIMES 100 Business Case Studies,26 Jan 2013), (ref. ref.www.strategic-control.24xls.com/en211,Leadership Development,26 Jan 2013) Budgeting needs to be comprehensive, if not it cannot fulfil its role as the framework for delegation.
In my conclusion, Budgeting is a key component in management short and long term planning as it’s an essential process of the system. It is important to an organization as budgeting and planning act as pillars of the company. Without budgeting, the company is not able to fully optimize its resources and may collapse in terms of financing. It is also a key component for management in short or long term planning. In my opinion, budgeting and planning is a necessity even in our daily lives. It helps us manage and plan our marketing resources, monthly bills payouts and even travelling expenses. It’s an essential to our daily lives as we use budgeting and planning on a daily basis especially when money is involve.
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