Planning is the basic managerial function. It helps in determining the course of action to be followed for achieving organizational goals. Budgeting is a course of planning for future course of action.
Meaning of a Budget
www. questia.com , Alagiah, R. 2006 pages (6 and 7)
A budget is the monetary or /and quantitative expression of business plans and policies to be pursued in the future period (www. questia.com). The term budgeting is used for preparing budgets and other procedures for planning, coordinating and control of business enterprise. (as per Alagiah page)
The financial managers have a responsibility to formulate effective budgets that meet the desired goals of an organization, since it is the responsibility of the finance manager to beat budgetary deadline by creating a sound financial system and adequate implementation to enable an organization to meet its goals easily.
The effect of a budget can be felt entirely in a whole organization, it can be felt based on its soundness to a given area of its implementation. As per (http://findarticles.com)A budget as a blue print of a plan expressed in quantitative terms, can adversely influence the behavior of an organization based on its impact within the implementation chambers commonly a negative effective on budget which leads to lay offs, retrenchments, business closure, leads to organizational politics which will result to creation of mistrust amongst casual employees, permanent employees and key executive leaders.
This may create organizational politics which results to deviation in organizational objectives achievements. Once organizational politics emerges against the budget allocations, whole organization is affected as it may result to strikes, poor quality products and many other negative responses against the budgeted rates that directly affect employees.
When poor or unsupportive budgets are made or created, it may result to misuse of organizational resources since the employees will feel left out. This will influence the mode in which the employees will utilize resources and how well the human resources can be utilized to maximize production and even sales. Most financial strategies adopted in the budget should be worker friendly and each and every organization should influence and ensure active participation of employees both permanent and on contract employees.
Budgeting once it is not within the expectations of organizational employees will result to poor chain of command and even result to altered in formations across the managerial ranks in an organization. This behavior may result to resistance of change, passing of distorted information and may result to conflict within an organization whereby conflict resolution will prolong the production chain hence results to losses and lose the market share of a company.
Budgeting forms the backbone of any organizations goals achievement, if budgets are not drawn with the performance expectations, there will be deteriorated performance with key persons in the organization hence resulting to poor performance among the workers both from high levels of the organization. Here in this case budgeting plays a greats role in the performance of all employees in an organization. This can be viewed from a point of view that managers who survived aggressive budget cuts and downsizing at a given area of operations where they had low participatory chances, resulted to low performance in their operation hence resulted to target achievement of all organization.
Budgeting in all organization largely covers a wide area in financial management, one of the area include budgets drawn by an organization based on financing of an organization, either to seek funds from equity shareholders, or from the debt. These are among the factors that may affect the organizational behavior, most shareholders who have had a negative share value will result to frustration amongst shareholders and even the shareholders may withdraw from such a company.
Due to this factor, most managers work towards self interest mood to fulfill the needs of their shareholders. Since borrowed funds and owners capital is a measure of the long-term financial solvency of affirm, therefore most executives tend to act more serious to create sound projects in order to achieve the desired goals.
Budgeting as defined a plan for course of action is one of the sound activities that an organization will ever adopt. Budgeting is one of the activities that influence the satisfaction (www.questia.com) of an employee. Job satisfaction is one of the drives towards organizational commitments of an employee. Once a sound budgeting is put in place (Alagiah, R. 2006, page 43) that influences all levels its preparation, job satisfaction will be at its upper most among its employees. This will drive to organizational commitment so as to attain the organizations goals without much strain.
Organizational altitudes that are put or set in an organization. If budgets are tight, managers are forced to do more for less. Goals to meet budgeted targets therefore become more difficult and the altitudes of managers and eve behavior who survive on such tight budgets become critical to dieter such budgets which in advance changes the managers altitude towards the work.
Morale plays a greater role in organizational goals attainments people are motivated with kind of budget that are set inclusive budgets leads to more positive employee morale towards organizational goal commitment. As morale is one of the behaviors that are adopted within an organization, most employee behavior and commitment towards group goals is largely affected by budgets.
When tight budgets are set most employees morale towards the organization drastically falls below the level desired for positive performance. Therefore, in this case mostly organizational budgets plays a grater role in the behavior that will affect influences the morale or behavior that will be adopted by an organization for the fulfillment of personal interest or organizational goals in that aspect.
Budget plays a greater role in the employee’s perception towards the commitment of an organsiatation. Mostly tight budget results to negative perception of an employee towards the top management, and other organizational leaders .Even the perception of an organization by an employee can be largely be affected by the budgets that area set by the management.
Downsizing and budget cuts may lead to various perceptions by employees especially if the area of effect by the budgets largely touches that lower and middle management employees. In that order, such budgets may result to rumors amongst employees in the levels of an organization that are affected by an organization. Satisfactory budgets may lead to a positive perception which will lead to active group participation; dynamism among employees in an organization. This largely influences the nature of behavior that will be adopted by employee in an organization.
Organizational change (as per www.questia.com) is another aspect that is facilitated by a kind of budget set up by an organization. Tight budgets results to resistance to change by most employees in an organization. Mostly resistance to change comes about due to regular budget cuts and downsizing where by most employees may feel a sort of job insecurity hence leading to regular strikes in an organization and set up of employee unions within an organizations as to protect the interest of employees.
Most organization is perceived as well wishers to the societies through their public interest. Social responsibilities that are adopted by most organizations are influenced by the organizations budgets allocation on such activities .Mostly, well established companies engage in social responsibilities that extend to a wide area of coverage in the aspect of public services. Budget allocations therefore mostly influence the organizational habits and organizations commitments towards the public welfare hence boosting the company’s image amongst the public.
This is a kind of behavior that concerns the activities that are being adopted by most organizations. Organizational budgets have an impact on the pricing module of the products .Most organizations (as per V. J Sharma budgeting controls page 35) with extensive and wide coverage budgets tend to set product prices at a higher rate so as to accommodate the desired budget targets, with medium budget organization there is a liberal price setting in all organizations price setting to its consumers.
Budget are the core sources of organizational pricing, promotion strategies, marketing strategies and inter corporate relationship will be enhanced as they considered the marketing atmosphere amongst competitors hence fair market competition which is one of the bahaviours that be manifested among competitors for the success of a company.
The mode of budgeting that all organization adopts, basically influence the mode of competition that will be available amongst the competitors as it will enable each and every organization to effectively survive in the market.
Business ethics should be incorporated in an organization budgeting mode. Budgets should be set with an ethics concept in it. Ethically budgeting should be made based on the capacity of the organization to plan for the future. Organizational ethics can be achieved if an organization will be able to pan and set goals that will not lender much strain to its employees. Ethical goal setting in this aspect should be followed so as to enable organizational reliability amongst its shareholders, customers, suppliers and even competitors.
Budgeting enhance the core most and ethical mode/behaviors on activities such as investment, management of working capital, capital structure decisions (Journal of Cost Management and budgeting, page 30 & 31), a clear and sufficient dividend policy, analysis of risks and returns, production and marketing.
All these activities are influenced by the budgeting manner in an organization. Investments are largely influenced by the kind of budgets that are drawn. Organization al behavior on investment issues are largely controlled by the capacity of the designed budget to adequately combine all available resources and utilize them in the investment kitty that all organization ayes on.
Organizational decisions are a major source of what should be done. For all organization to embark on a fair decision making process in all organization is majority influenced by the organizations budget. Most decisions made are focused based at the budgeted figures hence leading to all organization n to adopt a move reserved mode of decision making based on the budgeted figures. Based on this fact, decisions made may end up be either being friendly to employees or unfriendly to employees hence leading to a better group work and group goal achievement or split of groups based on the nature of budgets set
HOW MANAGERS HAVE CHANGED BUDGETING PROCESS
(Source: http://www.questia.com, gateway.nlm.nih.gov)
Most managers have adopted a new model of setting budget based on inclusive process of budgeting whereby every employee’s participation in setting up his opinion on what the budget should include and exclude.
In the modern society (David E. Keys page 30, 2006), most managers have shifted form a traditional way of setting up budget to a modern whereby the society is inclusive in the setting up of budget .This can be reflected whereby most originations have adopted a social responsibility way of doing this which has actually has led an impact on the budget.
Budgeting is a source of organizations actions both in long-term and short term. Mostly organizations have adopted a habit of setting tight budget that fall short of the goals (gateway.nlm.nih.gov and AICPA, 2006, page 9) or the objectives that they should attain. These has influenced mostly the mode of budgeting in various organizations.
With the changing trend in information technology, managers have adopted capabilities the provide for agencies to perform their financial transactions with a few staffs /small number of staff , As well with the changing technology managers have moved from paper work of drafting budgets to amore electronic mode of budgeting. This has resulted to a change in trend of budgeting. These have largely influenced a change in the mode of budgeting. Therefore here mean say that budgeting has drastically changed.
Alagiah, R. 2006. The object and the subject of accounting budgets: Evidence of early use by British colonial houses. Journal of Applied Management Accounting Research pages 40 – 50
Handbook of Process Based Accounting, Leveraging Processes to Predict Results" (AICPA, 2006) pages 7 – 15.
Antos, John and James A. Brimson, "Activity Based Budgeting", Handbook of Budgeting, Third Edition, 2005 Supplement, (New York:JohnWiley)
"Tracing Cost in the Three Stages of Activity-Based Management”, David E. Keys, Journal Of Cost Management, Warren, Gorham & Lamont, Winter, 2006 p 30.