EFFECTIVE BUDGETING STRATEGIES LINKED TO OUTCOME
CHAPTER ONE
INTRODUCTION
The Problem’s History
Organizations, in general, make use of a variety of resources, including financial, human, and capital resources. One of the most important factors in achieving organizational objectives and goals is financial resources. However, in order to achieve the objectives, a budget must be effectively prepared and adhered to.
A budget can be defined as a quantitative expression of a plan, and budgeting is the process of converting plans into budgets. A budget is one of the most commonly used tools for planning and controlling business operations. In a large institution, the budgeting process may be quite formal, with committees formed to carry out the tasks.
In a small firm, on the other hand, the owner may write down the budget on a piece of paper or simply budget in his head about the items he can remember easily. In many business organizations, a well-managed budget can promote long-term profits.
The actions that follow managerial decisions typically involve several aspects of business, such as marketing, production, purchasing, and finance functions, and it is critical that management coordinates these various interconnected aspects of decision-making.
If management fails to do this, there is a risk that managers will each make decisions that they believe are in the best interests of the organization when, in fact, they are not; for example, the marketing department may launch a promotional campaign designed to increase sales demand beyond what the production department can handle. The various activities within a company should be coordinated through the development of action plans for future periods. Budgets are the common name for these detailed plans (Drury, 2004).
The budget is one of the most important tools for implementing an organization’s goals and policies. In other words, the budget serves as the foundation for organizational decision making. Budgeting is important not only for organizations but also for individuals in determining how to spend their money in relation to their income.
Budgets also serve other managerial functions such as planning, controlling, communication, and motivation. A well-planned budgeting system allows the organization to achieve its objectives more effectively (Drury, 2004). Because of the rapid changes in today’s business environment, a rigid approach to budgetary control has become obsolete.
It is no longer useful to compare actual results to predictions made up to 15 months ago (Pandey, 2002). He contends that one of the requirements of a more appropriate system would be the inclusion of accountability to explain the disparities between actual and planned performance.
This necessitates more immediate information reporting. As a result, strategic management and budgeting must be integrated. These authors proposed that in order to be effective, budgets must be aligned with the Organization’s strategies, appropriate strategic planning, and performance management processes must be introduced, and processes that are value-based, consequential, and continuous must be implemented.
(Arora, 2000)’s work could be viewed as adding to the above point because he recognizes the need for organizations to integrate strategic management and budgeting.
According to (Arora, 2000), it is unfortunate that most organizations still treat budgeting and strategic management processes separately, and that a significant portion of small and medium-sized businesses do not engage in strategic planning (Arora, 2000).
As a result, the purpose of this research is to assess the effectiveness of the budgeting process in achieving organizational goals at TEMESA.
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