Day 248 Budgeting

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.