Finance Budgeting Example For Free - Free Essay Example

Sample details Pages: 6 Words: 1730 Downloads: 1 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Level High school Topics: Budget Essay Did you like this example? Budgeting, if not used effectively, can result in underperformance, corruption and even the failure of the organisation. Budgeting has been used as a method of coordination and control but when left unregulated it can result in the very worst kind of opportunistic behaviour. As a result there have been a number of developments in budgeting, such as the rolling budget and benchmarking performance. It is dependent on the organisation which method of budgeting is optimal. Traditionally budgeting has been used by organisations as an accounting tool to plan and control the activities within an organisation or rather The quantitative expression of a plan of action and an aid to the coordination and implementation of the plan (Bhimani et al, 2008, p935). In relation to planning managers are expected to forecast sales, profit, and capital expenditure (Hope and Fraser 2003). This information is then analysed by executive managers and the forecasts of all the different d epartments within the organisation are coordinated and adapted to create a final budget. These budgets are usually set for a short period of time, usually a year, and are set months before the time the budget start date. It is therefore a good way for managers to communicate as these budgets would supposedly identify any potential problems within the departments and plan to action them in the next budget. For example potential bottle necking whereby a department uses more resources than it produces. It also allows each department to understand where it lies in the coordination of the organisation. When a budgeted target is fixed management is evaluated in relation to whether or not they have met the target which provides a measure of control. Managers are directly responsible for the performance of the activities they coordinate and monitor. If managers meet the target they will be rewarded, however if they fail it will reflect badly on their performance, this system provides mot ivation. It also allows for authorised expenditure so departments do not have to seek permission for purchasing which saves time. Each year the budget can be reviewed and modified in order to better suit the actual performances and to allocate resources more effectively. On the surface the idea of traditional budgets seems an effective way to coordinate and monitor an organisation, in reality it can lead to underperformance, corruption and even failure of the organisation. Managers are set a target with the incentive of a bonus so if the target is reached their priority will be to meet the target. As the target has a deadline they will aim to meet the goal irrespective of the long term affect on the organisation. Targeting can lead to a reduction in quality of goods and services. For example if a furniture store set their sales team a target and they could sell to customers on credit they may sell furniture to customers who may be unable to pay back the credit. But the short term results are what matters in terms of bonuses not the long term credibility of the customers. If managers are unable to meet the short term target managers may manipulate results in order to receive a higher bonus in the next period rather that not receive the bonus two periods in a row (Big Bath Theory, Jensen, 2003, p387). As a result it will be difficult for an organisation to have the information required to set an accurate budget in future as a result the communication benefits are reduced. Managers may also manipulate information in order that the target will be set lower than they are capable of achieving and so there is no pressure to work at maximum capacity (Slack Budget). Budgeting therefore promotes manipulation of information by creative accounting, and a reduction in the quality of performance of departments. Traditional budgeting is very inflexible and in times of turbulence of an economy or market it is not easily adapted. Targets are set sometimes months befor e a time period begins and then fixed for the entire period. As there is no way to predict the changes in the state of the economy or particular changes of circumstances within a market traditional budgets do not allow for these changes. Traditional budgets are also very time consuming absorbing up to 30% of management time (Hope and Fraser 2003) this man power has a cost as every time a fixed budget has to be revised resources are allocated away from other activities. It is also time consuming to negotiate and coordinate a new budget with all the departments in the organisation and by the time a revised budget is agreed it could be too late for it to be effective. Budgets were intended as a way for executives to stay close to customer information and adapt accordingly. However this time consuming nature results in any change being made redundant and the manipulation of information, leading to false information, would result in the wrong changes being implemented. As budgets are fixed it prevents innovation as for innovation to be undertaken in traditional budgeting an organisation will need to be worked into the budget before hand so innovation is stifled. The obsession with the detail makes it difficult for an organisation to adapt when necessary to the changing circumstances within the environment they operate. In the cases of the budgets over estimating authorised expenditure managers will use every penny they have been allocated so as to keep the same expenditure in the next budget. In contrast Kaizen budgeting could be incorporated whereby the budget explicitly incorporates continuous improvement during the budget period into the resultant budget numbers. (Bhimani et al 2008) As a result the role of traditional budgeting must be abolished and a more modern type of budgeting should be adopted. One of these ideas is the idea of a rolling budget whereby a budget is produced every three months and covers a set period of time typically between 5-8 qu arters (p112 Hope and Fraser 2003). These types of budget eliminate the problem of a fixed dead line so in manipulating performance statistics, so as to reach the target at the end of the year, managers would instead have an incentive to continue performance continuously. Each year two further budgets could be provided to managers one showing the four year plan and one a ten year plan, for example (p112 Hope and Fraser 2003). This would promote long term planning as opposed to short term manipulation of performance. This type of budget is a lot quicker to put together due to its nature and will also be capable of adapting to environmental turbulences relatively quickly. Kaplan and Norton (1992) created the Balance Scorecard as a measure of performance where it not only concentrate on financial dimensions of performance but also take into account non-financial ones. This is achieved through incorporation of customer, Leaning and growth, and internal efficiency perspectives. (Ciesl ak and Kalling 2007 p3). Benchmarking is another option where key performance indicators (KPI) are used to compare the work of an individual, or section of the organisations. These benchmarks can be set against peers within the same organisation or peers of a competitor organisation. In this case the comparison is relative rather than set and so the focus is shifted from short term goals of the firm to long term improvement and performance of individuals and their department (Drew 1997). The benchmarks are set on process, product/services and strategy (Drew 1997). The information required to improve efficiency lies with the employees and so innovation is able to emerge as more responsibility is given to the workers. Communication is restored and the time taken on setting out a budget is reduced as the aim is not to achieve a target but to get the best result. Jensen (2003) would argue that the source of the loss of integrity is the managerial hierarchy and so decentralisation cou ld be a solution. This decentralisation can be achieved by giving more power to the workers in the form of participating in budget setting (Hofstede 1968 the game of budgetary control p175). This can act as a source of motivation as the workers will feel empowered rather than suppresses by the target setting focus on figures rather than quality. This can also act as a source of learning for both ends of the hierarchy. Stewart (1990) argued that the decentralisation of debt equity was another way to motivate the workers. While there is a very negative perception of the traditional role Marginson and Ogden (2004) for the benefits of traditional marketing. Managers welcomed the certainty created by the combination of clear goals and well-specified objectives and a performance evaluation system that was tightly focused on how successfully those objectives have been achieved (Marginson and Ogden 2004 p436). It is also worth considering the cost of implementing such changed, as organis ations will have to retrain their workers and reorganise the system (Jensen, 2003, p403). As a result organisations must assess the costs and benefits to their specific organisation before abandoning traditional budgeting entirely. Traditional budgeting in small firms could still be effective. In conclusion the full benefit of abolishing traditional budgeting is dependent entirely on how effectively an organisation implements new developments. While developments such as rolling budgets and benchmarking solve some of the problems there is a cost of introducing them. Therefore traditional budgeting should not be abolished entirely in all organisations but instead careful consideration should be taken in deciding what should be implemented and how this should be done. References Bhimani, A, C. T. Horngren, S. M. Datar and G. Foster, 2008. Management and Cost Accounting. Essex. Pearson Education Limited. Hope, J. And R. Fraser. 2003. Who needs Budgets? Harvard Business Review. 81(2). pp. 108-115. Jensen, M. C., 2003. Paying People to Lie: the Truth about Budgeting Process. European Financial Management. 9(3). pp. 379-406 Kaplan, R. S. And D. P. Norton. 1992. The Balanced Scorecard-Measures That Drive Performance. Harvard Business Review. 70(1). pp. 71-79. Cieslak, K. and T. Kalling. 2007. Reasons behind contemporary use of budgets.NNF conference, 9-11 August 2007, Bergen. Lund University, Sweden: pp1-6. Drew, S. A. W. 1997. From Knowledge to Action:Impact of Benchmarking on the Organizational Performance. Long Range Planning. 30(3). pp. 427-441. Great Britain. Elsevier Science Ltd. Hofstede, G. H. 2001. The Game of Budgetary Control. London. Routledge. Stewart, G. B. 1990. Remaking the Public Corporation from Within. Harvard Business Review. 68(4). pp. 126-137. Marginson, D. and S. Ogden. 2005. Coping with ambiguity through the budget: the positive effects of budgetary targets on managers budgeting behaviour. Accounting, Organizations and Society. 30. pp. 435-456. Don’t waste time! Our writers will create an original "Finance Budgeting Example For Free" essay for you Create order

Essay about Decision Making by Criminals - 3039 Words

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Importance Of The Millennium Development Goals Commerce Essay Example For Students

Importance Of The Millennium Development Goals Commerce Essay The Millennium Development Goals ( MDGs ) were agreed upon at the Millennium Summit in September 2000. More caputs of provinces ( 189 states ) and authoritiess came together than of all time before, a benchmark in itself. They pledged to work together amp ; to do a better universe for all by 2015. Unanimously subscribing A ; following a bundle, aimed at eliminating societal unfairnesss A ; inequalities ; utmost poorness, acquiring all childs to school, including misss ; gender equality, contending maternal mortality and kid mortality, change by reversaling the AIDS pandemic A ; guaranting sustainable development in an environmental sense. These perpetrating states agreed upon a new planetary partnership to guarantee these ends were met and set out a series of clip bound marks, with a deadline to be met by 2015. The MDGs are the most ambitious and most loosely supported development ends of all time to be established. The Millennium Development Goals are a set of eight ends, which pledge to emancipate work forces, adult females and kids from the dehumanizing conditions of utmost poorness and do the right to development a world for everyone. Listed below are the eight ends: Goal 1: Eradicate extreme poorness and hungriness Goal 2: Achieve universal primary instruction Goal 3: Promote gender equality and empower adult females Goal 4: Reduce kid mortality Goal 5: Improve maternal wellness Goal 6: Combat HIV/AIDS, malaria and other diseases Goal 7: Ensure environmental sustainability Goal 8: Develop a Global Partnership for Development The eight MDGs interrupt down into 21 quantifiable marks that are measured by 60 indexs. The MDGs are more than merely ends, they are seen to supply an overarching model for the development attempts, and benchmarks against which to judge success ( Health and the millenary development ends By World Health Organization ) . They set out a clear A ; precise docket as to what is required to assist gain the ends. Each end has been designed so that it is easy to understand, easy to implement and easy to mensurate in order to assist better the lives of the destitute people of the universe. The fact that MDGs are concrete, clip edge and intentionally designed to be mensurable ( which lends to a sense of answerability ) makes the MDGs experience more touchable people everyplace can instantly associate to them ; they speak to the immediate concerns and basic demands of everyone globally. Measurability is seen as an built-in feature of the MDGs, it is through this that the United Nations is a ble to measure how close it is to accomplishing one of the most ambitious understanding agreements in its history. Furthermore, this besides leads to authoritiess being held accountable for any abnormalities that may originate or for failure to implement successfully the eight MDGs within their state provinces. The MDGs reflect an unprecedented committedness by the universe s leaders to undertake the most basic signifiers of unfairness and inequality in our universe ; poorness, illiteracy and sick wellness. ( Health and the millenary development ends By World Health Organization ) . The importance of the MDGs can non be overstated. First, as set out in the Millennium Summit the purpose of the MDGs is to emancipate the billion plus people who presently live in utmost poorness. A common adage the universe over is the rich get richer whilst the hapless get poorer. However, with the MDGs it seems that the stigmatization on the richer states is easy being rendered disused. Second, cut downing the figure of people in poorness affairs for security and stableness. Research shows, for illustration, that a negative daze on income growing increases the chance of a civil war well ( United Nations Millennium Development Project 2005 ) ( Financial sector development and the Millennium Development Goals By Stijn Claessens, Erik Feijen ) . A premier illustration is that of the of all time declining state of affairs in Sudan s Darfur part, where the scarceness of sanitized H2O has seen some of the worst human-centered crisis of the twenty-first Century, with more than 200,000 D arfuris dead and 2 million holding fled their places. Third, economic wealth for the hapless creates new world-wide growing chances, by opening new consumer markets and commercial activity ; the 4 to 5 billion underserved people are estimated to stand for economic chance of $ 13 trillion ( Financial sector development and the Millennium Development Goals By Claessens. S, Feijen. Tocopherol ) . Arguably the biggest stumbling block for poorer states being unable to achieve the 7th MDG of guaranting environmental sustainability, is wholly down to the developed states imperativeness on duties, quotas A ; subsidies. All of which have made it highly hard for developing states to gain a life on their green goods. Hate Crimes Essay Decision The MDGs came about through the common understanding of the universe s leaders from developed states to developing states, each holding their ain function to play in taking to assist better the lives of one million millions of destitute people. They agreed upon eight ends, covering poorness, hungriness, wellness, kid mortality, adult females s rights, the environment and a planetary partnership on development. It is the primary duty of the poorer states to accomplish the first seven ends. They must make more to incorporate the MDGs into their policies, programs and budgets and interpret them into services for the hapless. There is a demand for more transparence and answerability so the advancement being made, or deficiency of, is clear for all to see amp ; so allows for the people to keep their authoritiess accountable for the promises they made. The MDGs are reciprocally binding, so the hapless states can non accomplish their first seven ends unless rich states fulfil their duties set out in end eight ; Develop a Global Partnership for Development. The developed states need to give more and to do certain what they are giving is used more efficaciously. They besides need to offer more debt alleviation and increase trade chances for hapless states by cut downing duties and subsidies to agriculture which deny husbandmans from hapless states their best opportunity of gaining a nice life. The importance of the Millennium Development Goals, is to implement a clear model from which the universe is able to cut down the societal unfairnesss and inequalities. It is to acquire the heads and oral cavities of the ordinary individual working so they continue to endeavor to accomplish the ends, manner beyond the outlooks of politicians. Their attainment, which is possible, lies in the custodies of every individual person.