After just going through personal budgeting; it’s time to learn something in terms of Organizational Budgeting. I’ll not take you through the complex calculations and statistical models; rather I’ll try to discuss basics of this Financial Management Tool just to make my readers comfortable enough to understand the articles or commentary on the topic.
“The Budget is the formal quantification of management’s plan”; it looks like a simple definition but it serves as a tool for complex processes of:
· Planning
· Controlling
· Communicating
· Motivating
· Evaluating
Budget as a Planning Tool helps management to foresee problems before they step-in through the front door. But to plan something there must be a mission/target to achieve; then an effective course of action can be devised to reach that target. Normally this mission, target or goal (whatever it is called) is set by top management.
After the course of action is decided to achieve the targeted goal; the most important thing is to control the process of achieving this goal. Here Budget serves as Controlling Tool; as it provides a basis for monitoring and revising the activities of an Organization towards achieving the goals. The actual results are recorded and compared with the budgeted ones and the variances show the performance. If the variances, adverse or favourable, are under the tolerable limits then operational plans are working in line with the Budget; but if the variances are jumping beyond the limits (set by middle management with the Budget) then it is important to revise the budgeted targets.
A budget, then, serves also as a message from top to lower management showing the later that what the former need from them. It means that Budget is an effective Communication Tool. It helps to facilitate the coordination of activities of an organization. It is silent but yet a forceful tool that binds every part of organization to strive for accomplishment. The organization like a human body is nothing without its organs/parts. Just imagine, if any part of the body refuses to accept the orders of brain then the other parts can’t achieve the target set by brain. The same phenomenon is true for an Organization. The success is subject to collective efforts of all the elements in the right direction.
If management announces the incentives to accomplish the Budget; then this Budget will serve as Motivational Tool also. But only a realistic budget can motivate employees to strive for achievement. Another way to use Budget as motivational tools is the “Participation” of employees in the process of Budget preparation. If an employee is a part of budgeting process then he/she will definitely work hard to get it done.
At the end of process, Budget serves as Evaluation Tool. Comparing actual results to the budget help manager to evaluate their own performance; as well as the performance of subordinate managers. This evaluation helps management to revise the parameters; as well as to devise the tools to improve the efforts of underperformed areas.
“The Budget is the formal quantification of management’s plan”; it looks like a simple definition but it serves as a tool for complex processes of:
· Planning
· Controlling
· Communicating
· Motivating
· Evaluating
Budget as a Planning Tool helps management to foresee problems before they step-in through the front door. But to plan something there must be a mission/target to achieve; then an effective course of action can be devised to reach that target. Normally this mission, target or goal (whatever it is called) is set by top management.
After the course of action is decided to achieve the targeted goal; the most important thing is to control the process of achieving this goal. Here Budget serves as Controlling Tool; as it provides a basis for monitoring and revising the activities of an Organization towards achieving the goals. The actual results are recorded and compared with the budgeted ones and the variances show the performance. If the variances, adverse or favourable, are under the tolerable limits then operational plans are working in line with the Budget; but if the variances are jumping beyond the limits (set by middle management with the Budget) then it is important to revise the budgeted targets.
A budget, then, serves also as a message from top to lower management showing the later that what the former need from them. It means that Budget is an effective Communication Tool. It helps to facilitate the coordination of activities of an organization. It is silent but yet a forceful tool that binds every part of organization to strive for accomplishment. The organization like a human body is nothing without its organs/parts. Just imagine, if any part of the body refuses to accept the orders of brain then the other parts can’t achieve the target set by brain. The same phenomenon is true for an Organization. The success is subject to collective efforts of all the elements in the right direction.
If management announces the incentives to accomplish the Budget; then this Budget will serve as Motivational Tool also. But only a realistic budget can motivate employees to strive for achievement. Another way to use Budget as motivational tools is the “Participation” of employees in the process of Budget preparation. If an employee is a part of budgeting process then he/she will definitely work hard to get it done.
At the end of process, Budget serves as Evaluation Tool. Comparing actual results to the budget help manager to evaluate their own performance; as well as the performance of subordinate managers. This evaluation helps management to revise the parameters; as well as to devise the tools to improve the efforts of underperformed areas.
No comments:
Post a Comment