Budget Planning And Control, Critical Elements Of Performance

Budget planning and Control
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Budget Planning and Control
Currently, planning, budgeting, and forecasting are critical elements of performance management in small, medium and large corporations. A fully integrated performance management agenda essentially provides corporate visibility of activities that drive growth as well as resource allocation (Swan, 2010). However, there has been an increased rate of failure among business attributed to inadequate planning amidst the stiff competitive business world (Needham, 2016). Budget and a budgetary process is a significant tool of effective budget planning and helps to determine costs and revenue.
Comprehensive and realistic budget plays a role in guiding business and providing information necessary for present operations and predicting future challenges and ultimately turnaround for profits. According to Needham (2016), a budget is a measurable expression of a projected plan of action by business management for a specified period with guidelines on the implementation of such programs. Budgets can be categorized into sales, production, purchase budget, expenditure cash, master, zero-based budget and flexible budget (Hampton, 2011). Traditionally, the budgeting system was a tool used managing and controlling businesses, although, the primary role remains unmoved, modern day budget planning and control have contributed to delivering the future long-term strategy.
First, the budget as a planning tool acts as an essential background between the business and its finances. A budget combines past trends and realistic estimates for an accounting year; the result helps establish a thorough explanation of the assets, expected revenues and how they tally against the estimated expenses (Hampton, 2011). For instance, Babycakes through the use of budget planning and control helps in determining company performance and instill discipline in spending. Therefore, the organization can evaluate the strengths, weakness, threats, and weakness.
Second, financial plans help to determine goals and objectives as well as establishing business priorities. Budgets identify the source of funds for executing laid down strategies and the expected rate of return on investment (Needham, 2016). For instance, high priority items that generate more revenue should be allocated more funds and fewer resources to the low priority items. As a result, it reduces wastages as well as improving efficiency (Swan, 2010). In the case of baby cakes, excess production of cakes leads to oversupply for the day, which in turn leads to the cakes disposed at a loss.
Third, budgets as a tool for planning and control helps in employee motivation. Budgets have impacts on personal attitude and performance (Needham, 2016). A well-structured budget should be all inclusive to all the participants affected by the budget. According to Swan (2010), these workers are more knowledgeable about the products and underlying issues in the operations line of the business. An illustration in Babycakes is Donald’s which has different emotional reactions to the customers. When the employees participate in the budget formulation, they effectively adopt the goals and objectives. For example, Babycakes, customer-e...