Budgeting
In my opinion, there are
five stages involved in creating an efficient and accurate budget. First of
all, managers must determine the goal of the business, which the budget must
comply. It will be an important factor to evaluate the budget and provide
guideline during the preparation process. In the second stage, management will
decide the type and period of the budget. These attributes should correspond to
the objective from the first stage. Thirdly, the detailed budgets are developed
through cross-department coordination (participative budget) or top management
decisions (top-to-bottom implementation). During this stage, managers have to
make reasonable assumptions on business future performance in specific areas.
Such predictions are base on the managers’ perceptions and company’s past
performance. Moreover, the bottlenecks (limitations) forecasts should be aware
by the management to enable efficient resource allocation. After the planning
stage, the budget committee is responsible for generating a further evaluation
of the budget effectiveness. The committee assesses all factors such as
systematic risks, potential conflicts with the current system, or internal
business conditions. According to the result, management will make necessary
adjustments to ensure the budget sufficiently support the objectives. At last,
the final budget will be communicated to stakeholders, where all relevant
matters should be clearly represented.
Managers participate in two
major roles in budget preparation: developing and controlling. In fact,
managers provide the data used in budget creation, where all the forecasts are
suggested by their experience and assumptions. Also, a successful
implementation of the budget depends on manager’s participation. Top management
is responsible for communicating the budget to stakeholders and design
simulation package for meeting the budget targets. Hence, managers control the
preparation process to maintain the budget efficiency and effectiveness.
On the other hand, the
budget committee oversees the budget establishment. It is their responsibility
to make sure that the budget complies with the company goal. They are also
required to resolve conflicts and impediments incurred during the preparation.
(Garrison, Noreen & Brewer, 2015) Besides, the committee coordinates
cross-functional departments to generate the budget, and the committee will
evaluate the outcome before implementation.