Budget essay

Title: Budget essay
Name:
University:
Date due:
Abstract
Budgeting plays an important role in business and concept of budgeting is important no matter how small the business is. Without budgeting, most businesses are likely to fail while those that do not budget correctly are likely to have the same effect.
Many businesses ignore the significance of budgeting or do not budget correctly as they feel it involves a lot of paperwork that consumes time that can be used elsewhere. The importance of budgeting is well beyond description
Introduction
A budget is a quantitative or financial statement that is prepared and approved before a definite time period, of the policy that is to be pursued during that time for the purpose of achieving a certain goal. They include expenditure, income and employment of capital. Budgeting is essential in planning, controlling, coordinating, motivating, evaluating and communicating. It can also be said to be a plan that ensures you have money for future activity, control finance and make sound financial decisions by relying on figures that would otherwise be based on guesswork and instincts. Consequently, a budget is a plan of outcome of future that the business wants to attain.
Budgeting therefore ensures sound financial management in a company or in domestic level. However, there are limitations associated with budgeting. These include imposition of pressure by the management which results in bad labor relations and inaccurate record keeping. It also results into departmental conflicts due to dispute over resource allocation.
Waste may also arise as managers adopt the view of spending in place of losing. This is accompanied by empire building in order to enhance the prestige of the company. There are also issues of responsibility and control. For instance; some costs are under the influence of more than one person e.g. power costs. Furthermore, there has been concern over accounting numbers as too narrow gauge of performance of an organization. There have also been situations of dysfunctional behaviors arising from reliance on budgets in assessment tasks. Because of these limitations, beyond-budgeting approach has been advised, where alternative methods of planning and control and performance evaluation methods are relied upon.
This article tries to examine various budgeting methods and their strengths and weaknesses and proposed improvements proposed for budgeting as well as those that relate to beyond budgeting. Their likely impact on planning and control of the organization is also looked into.
1. Types of budgets and their strengths and weaknesses
(a). Incremental budgeting
This is a traditional method commonly used in commercial organizations and public sector. Incremental budgeting implies basing the budget for a department or function on the department of the previous period, usually adjusting for inflation by a percentage increase. Some particular changes that would ...