Budgeting as a Key Component in Short and Long- Term Planning Management
Budgeting is a process of planning, setting goals and defining the objectives of the management that are needed for a given period of time. It is the tool that provides specific direction and achievements for the company. It also controls the business setting, as well as it helps the management to study the financial aspects of the business and challenges of each department, and learn how to solve these problems. Budgeting also focuses on the essential points in evaluating the alternative actions before coming up with final decisions. Similarly, this is also the financial plan to control the future operations and outcome of the business. The financial aspect involves the budget allocation, the number of hours that must be spend in the operations and production, as well as the number of manpower that is needed in order to operate efficiently an effectively the business. Budgeting works also for the systematic and orderly management program that involves the management of the manpower as well as the effective communication process between the management and the workforce in order to promote motivational factors over the employees.
(http://en.wikipedia.org/wiki/Long_range_planning)
Furthermore, some budget allocation may be short term, like one year or less; it can be intermediate term for two to three years; or a long term budget that might span for three years or beyond. In the case of short-term budgets, they provide bigger details and information. On the other hand, intermediate budgets evaluate the projects that the company undertakes, so as to start the programs that are needed to achieve a long-term goals in the company. Speaking of long term-plans, there is a wide range of business plans that can be converted into short-term plans. As of this regard, the business objectives, applications, and the dependability of the data used in the planning process is also contingent on the business risks, sales performance and operating stability, production methods, and length of the planning cycle. Apparently, the ability of any business to meet the short-term business objectives heads the business off towards meeting the further direction of accomplishing its long-term goals.
(http://en.wikipedia.org/wiki/Long_range_planning)
Moreover, budgeting helps the management in the decision making, as well as in the measurement of the given variables, so as in evaluating the coordination of the joint efforts of the various people involved in the business operations. In this connection, the there are certain steps that involve in creating a budget in determining the overall strategic objectives of the business like annual budgets and operating business plans. On the other side, corporate goals include the earning potentials and growth of the business, as well as the cost reduction, sales target, productivity, revenues and the quality of products and services that company provides the customers. Similarly, it requires deeply the analysis and comprehension of historical background of the company, as well as the current trends, so as the competition norms in the industry. For the financial allocation, it can be raised by expected revenues within the specific period of time, through financing, net worth. cash flow, production purchases, among others.
(http://smartmoneysuccess.com/2010/07/key-principles-of-budgets-5-characteristics-of-effective-budgeting-five-important-areas-in-budgeting/)
Subsequently, the strategies and techniques of preparing, reviewing and approving budgets vary on the orientation among companies. The budgeting process must customize based on every company’s needs and requirements. In view thereof, there are five essential areas in budgeting; they involve planning, coordinating, directing, analyzing, and controlling. Likewise, effective budgeting first, it must be predictable; secondly, it has clear channels of authority, responsibility and communication process. Thirdly, it should have accounting-generated reliable, timely and accurate information. Fourth, the people and the budgeting plan should have both compatibility and understandability of information in order for the management to apply all the principles efficiently and effectively in the organization. After assurance with all these factors, the budget plan should be reviewed by an authorized group that has an exceptional knowledge in budget figures and principles. When it comes to financial matter, it must involve honest and reliable information and figures to be able to promote mutual trust between the parties within the organization.
(http://smartmoneysuccess.com/2010/07/key-principles-of-budgets-5-characteristics-of-effective-budgeting-five-important-areas-in-budgeting/)
Budgeting plan in the corporate level examines the sales and production outcome in order to estimate the production output, as well as the corporate earnings and cash flow in the business; and, how they will use them appropriately in order to accomplish certain objectives in the long run. In general, budgets also effective tools in allocating resources on machineries, workforce, motivating the employees, scheduling the production performance in the work place. Flexibility and innovation is necessary to allow review, revision and alternative actions to be taken in order to prevent financial risks.
(http://smartmoneysuccess.com/2010/07/key-principles-of-budgets-5-characteristics-of-effective-budgeting-five-important-areas-in-budgeting/)
References:
http://en.wikipedia.org/wiki/Long_range_planning
http://smartmoneysuccess.com/2010/07/key-principles-of-budgets-5-characteristics-of-effective-budgeting-five-important-areas-in-budgeting/
Credit:ivythesis.typepad.com
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