Budgets are an outline of a descriptive analysis that shows how an organization expects to use its funds in the future. Creation of budgets within an organization comes with the rising need by business organization to establish careful planning and control of their finances. It is among the important accounting tools that may be used by a company to ensure better management performance. The creation of budgets within an organization mostly occurs on annual basis with the main objective of distinctively outlining the expected needs associated with each department.
One of the major purpose of budgets is planning. Budgets are taken as plans because they present detailed description of what the management would like to achieve and the process in which they can achieve it (Liebler & McConnell, 2012). Budget proves beneficial for evaluation because it helps managers to forecast uncontrollable and unforeseeable environmental changes. As the result, establishing standards through budgeting comes out as an important aspect. Apart from the conflict purposes of planning and evaluation, the role played by budget in an organization also extend to coordination. For successful performance of an organization’s process, there is need for proper coordination among the existing activities. The coordination helps in effective goal achievement.
The types of budget preferred by an organization depends on which route the subject chooses to follow in master budget preparation. For the success of development and implementation of a budget, an organization has to ensure that they have used a proper preparation process that would fit the nature of an organization. Without this, an organization is likely to fail in their budget preparation process. In which case, management have variety of approaches to choose from in preparing a budgetary plan. The roles performed by a budget in an organization also depend on hierarchical organization, whether top-down or bottom up approach. This step involves determining the personalities to be involved in writing the budget for performance evaluation process. For top-down approach, the preparation of the budget is presided by head office within the organization, and then subordinated to the rest of the organization for review and agreement. This means that the top office level is responsible for harmonizing the essential elements required for preparation of budgets. The alternative of top-down approach is the bottom-up approach whereby the lower level managers preside over the completion of the first draft of budgets.
In budget preparation, the organization also choses whether to use a budget committee or a budget manual. The form taken by a budget is also indicative of the successful implementation and development. A budget committee or budget manuals are kinds of tools that are utilized by organizations to look over development and approval of budgets (Liebler & McConnell, 2012). Choosing between the two options depends on the time and resources that an organization have at their disposal. However, most organization do not prefer a budget manual because it ends up taking a lot of time, especially in the preparation process. Further, the organizations do not always require method that can go out of date easily. Consequently, for a proper and efficient coordination of resources meant for budgeting an organization will consider adding guidance notes into budgetary spreadsheet to enhance planning (Liebler & McConnell, 2012).
As a manager in order to justify the needs of the departments, I would need to explore all the dimension of budgeting. First, I would need to identify and plan the activities. This is done for the period that budget is to serve by consulting his/her staff. I would also have determine what each of the expenses will be. This is done by categorizing them. The previous budget maybe used or the invoices as a guide. I would need to involve all the stakeholders in the company to ensure that every process during the preparation runs smother. After consultation, I would then establish a budget plan that would satisfy the needs identified for all the process in the organization.
References
Liebler, J. G., & McConnell, C. R. (2012). Management principles for health professionals. Sudbury, Mass: Jones & Bartlett Learning.
