Budget as a survival for a business organization

March 17, 2022

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A budget is a financial or quantitative statement prepared and approved before a defined period to attain a given objective. This may include income, expenditure, and the employment of capital. A budget is normally for a year. One of the primary objectives of a budget is to measure the profit earnings of an organization. While budgeting control could be defined as the establishment of department budget relating to the responsibilities of executives to the requirements of a policy and with the budgeted result that either to secure by individual action.

The objectives of the policy or to provide a firm basis for its revision. Budget is also a standard with which to measure the actual achievement of people departments firm and so on. While budgetary control is also the planning in advance of the various functions of a business so that the organization as a whole can be controlled. J. Wald also defined a budget as a plan, quantified in monetary terms prepared and approved before a defined period, usually showing planned income to be generated or expenditure to be incurred during that period and the capital to be employed to attain a given objective. On the other hand, Charles T Horngren stated that a budget is a quantitative expression of a plan of action and an aid to coordination and control.

Objectives of drafting a budget:

Planning: This means a properly coordinated and comprehensive plan for the business organization. Each part must interlock with other parts.

Control: It is a plan set down on paper which does not mean that the plan will carry out itself. Control is executed via the budgets, thus name budgetary control.

Budget manual:

As one of the major objectives of budgeting is to improve communication, a manual must be prepared so that the organization can refer to the manual for guardian and information about the budgetary process. The budget manual does not contain the actual budget but it is more of an instruction or information manual about the way budgeting operates in the particular organization and the reasons for having the budget prepared. Contents vary from organization to organization.

Budget implementation:

When the budget is approved, it becomes an executive order of the authority, whereby each manager now works towards the attainment of the budgeted goals. The agreed budgets are published and passed to all the budget holders and budget centers. In a nutshell, a budget serves as a means of communicating plans and objectives downward. However, part of the budgetary process concerned with monitoring results known as budgetary control provides upward feedback on the progress made towards meeting the set plans.

Effective control of budget:

This is the last stage of the budgeting process and the most complex aspect of budgeting. It involves actual budget comparison and identification of variances, reporting to budget holders and senior management, variance investigation, and developing solutions to problems revealed by budgetary control. These are the main stage of budgetary control. This has been taken place after the actual events, usually every month. Speedy preparation of budgetary control statements and immediate investigation of revealed variances provide the best basis for bringing operations in line with the plan or where there have been substantial changes in the circumstance, making agreed alterations to the plan.

The investigation into the variances and their causes provides the link between budgetary control and budget planning. The experience of operations, levels of performance, and difficulties are fed to the budget committee so that the planning process is continually refined.

However, budgetary control is concerned with ensuring that incomes and expenditures are in line with the budgets and that wastage's are reduced to the barest minimum.

Finally, the overall view of budget shows that no organization private or the public can effectively and efficiently operate without designing implementation and effectively controlling the budgets, since it is a yardstick for measuring performance, hence it is important to humanity in terms of effective management of resources which cannot be overemphasized.