HI5017 MANAGERIAL ACCOUNTING | BUDGETING PROCESS ASSIGNMENT SAMPLE HELP
Briefly discuss the purposes of the budgeting process.
ANSWER: The process by which the revenues and expenses are determined eventually to regulate and sleek the expenditure process is known as the Budgeting process. The economy, finance, and business are regulated by budgeting as it keeps a trail of present revenue and expense which is delivered by several methods such as Forecasting, Monitoring, and Governing (Moreira, 2018). For any individual Budgeting process is imperative and vital as it keeps a record and trail on their everyday income and expenditure of their business. It helps the individual to look at their up-to-date income so that they can determine whether the company will be in loss or will gain profit in the future. It is important for every organization. The purposes of budgeting process are:-
Forecasting income and expenditure
Forecasting is an integral part of the budgeting process in the business plan. There must be the potentiality of anticipation where the company can forecast whether there will be loss or will gain profit. Their fundamental purpose is to provide a clear picture of business performance and how does it work (financially and strategically).
Business Plan Budgeting Process Profitability
Monitoring business performance
The budgeting process has a purpose to set-up a definite business performance which is then differentiated with the proposed budget which is related to forecasting. The owners and other members like managers have the responsibility to anticipate and forecast the budget for a strategic business plan.
The budgeting process helps the company in making decisions for the business plan as it is dynamic. It helps the business to prepare a financial structure that helps in planning by making decisions. The company must look after their expenditures. For example, if the expenditure is more the company won’t be able to afford the cost of advertising, i.e. they won’t be able to spend money on advertising (). But, if the expenditure is less, the company will be able to divide their expenses and spent not only for advertising but also for other promotional purposes. Controlling is the tool used for managing expenditure and making decisions.
In today’s market budgeting is involved in evaluating performance, formulating, and enforcing of course of actions or strategies and operating the objectives. Budgeting is the basic point where the managerial goals of the organization and the performance evaluation join. The management along with other members of the organization meets and pursues a strategic plan about the future growth of the organization by evaluating their present income and expenditures by the process of budgeting. This makes budgeting an integral part that is to be executed by every organization.
Based on your selected journal, discuss citing examples of whether the budgeting process satisfies the purpose of planning, controlling, and evaluating performances.
ANSWER: The purposes of planning, evaluating, and controlling performances can be satisfied by the budgeting process because budgeting is a strategic part decision making process. It helps in making short-term planning and helps in controlling the organization. Budgeting helps the company to make various strategies which completely helps the company in advancing the complete utilization of the budgets. But, on the other hand, the Budgeting process also plays a crucial part in having both strategic and operational objectives (Mareike, Brück, Thorsten & Anja, 2020). But, the budgeting process has possibly made operational objectives more important than strategic objectives because of the loading of the companies. In an organization the purpose of planning is to provide the anticipation of business analytical which in turn helps for balancing the budget eventually and to look after the future development and pursue an analytical plot. Lately, this anticipation or forecast of business analytical helps in giving back the result accurately. This helps the organization to come up with new plans and improving its decision-making process.
Consequently, budgeting can come up with various operational objectives that have various conclusions or indications. As per several pieces of research and analysis, planning, evaluating, and controlling are the three important objectives that are satisfied by the operational budgeting process (Mareike, Brück, Thorsten & Anja, 2020). Evaluating is the process by which the companies tend to figure out whether the companies are on a loss or they are gaining profit. This process also needs budgeting because by finding out the difference between the budgeted expenditure and actual expenditure they will come up with a conclusion of gaining profit or falling to loss. Evaluating the budgets also helps the employees to predict when the company will have maximum profit. Expenditures can be reduced by developing a business plan.
Strategic planning includes- formation of strategies, contemporary thinking, and normal attitude, resolving the expected budgets, and coordination among all the organizational members. Budgeting also satisfies the controlling purpose as it is very less time-consuming and it completely depends on the Board of Directors as the budgets are the only thing that is authorized to them. After the budgets are handed over to the Board of Directors, they are treated as overseeing or controlling strategy (). It helps to control the future costs of the company and also helps to predict the loss or gain of the company. Hence, the budgeting process tends to satisfy not only the purposes of planning, evaluating, and planning but also operational and strategic objectives. Controlling the budget helps the organization to forecast and decide future plans eventually without consuming more time.
The budgeting process is an economic coherent and therefore it is flexible and modifying. It also helps the organization to maintain a healthy relationship between top-level management and lower-level management. For example, Reebok International Limited, the world's vigorous sports footwear and clothing company has complete planning, evaluating, and controlling purposes due to which they have not experienced a fall in their budget since 1990. As per their operational budgeting objectives, their incomes and expenditures are balanced. The company perceives a strategic planning process that helps in controlling the budget. This in turn helps in brand promotions- advertising and campaigns.
The current research suggests that along with controlling the company also utilizes the process of forecasting where the company members, i.e. the owners and the managers anticipate and figure-out the budgets eventually that possibly helps the company to evaluate the future profits and losses of the company (Mareike, Brück, Thorsten & Anja, 2020). The study also specifies that the organizations respectfully use monitoring and forecasting as a device to provide planning and control purposes for budgeting, generally annual budgeting.
The two widely used practices in preparing budgets are "top-down" budgeting and "bottom-up" budgeting. Identify and explain the practice adopted by the organization discussed in your selected journal article and further explain the behavioral implications of the adopted practice.
ANSWER: “Top Down” budgeting process is prepared by the top-level management of an organization. The budgets are made through the usage of instructions given by the class of the organizational chain of hierarchy. This class of organizational chain of hierarchy helps in setting the goal which in turn helps to control or regulate the budgets. The top management or the executives have the responsibility to provide instructions especially in case sale budgets as well as the compensations. The middle or lower level of management does not have the instruction to get engaged in the process of budgeting. Their responsibilities are to transfer or carry out the instructions that are provided by the executives.
The "Bottom-Up" budgeting process is broader than the "Top Down" budgeting process. In this case the top-level may provide instructions but the middle and lower level has the responsibility to work out and define the budgets. The employees at the lower level are divided into different departments or groups and the works are also divided into them. This division of departments is done by the middle level (managers) (Leonardi, Spazzafumo, Marcellini & Gagliardi, 1999). The budget list of each product is made by each department and ultimately, these single product budget lists are united and the budget for the unified company is made. Not only employees at the lower level but also the middle level are devoted and in turn they work and experience more under the "Bottom-up" approach. This approach is less time consuming and more comprehensive than the "Top Down" approach.
The top-level management of Reebok International Limited may provide instructions and guidance about the budgets to the middle and lower level but the execution of the main work is done by the middle and lower level. The middle level (managers and other subordinates) divide the employees into several departments and groups and each group is assigned to make a budget list of each product (Leonardi, Spazzafumo, Marcellini & Gagliardi, 1999).). Ultimately, each department provides each budget list to the middle level. The middle level's work is to arrange, mix, and summarize those budget lists so that the budget list of the entire company is prepared. After the preparation of the budget list the middle level submits it to the executives or the top-level management.
Reebok International Limited chooses and practices with the "Bottom-Up" approach rather than the "Top Down" approaches because it is less time consuming and comprehensive. Moreover, there is unity if command in this approach, the instructions may be provided by the organizational chain of hierarchy or the executives but the main implication or association in practicing this approach is that all the levels work equally and all the employees are devoted to working together and also towards the organization (). This approach is also good for promotion as the employees have the right to speak and if their actual expenditure is much less than the budgeted expenditure then the company can make the decision to invest in some promotional strategies such as advertising or any ad-campaign.
By following the "Bottom-Up" approach for budgeting process all the members (top-level, middle level, lower level) in the organization have a good and pleasant relationship with each other. They won't face debilitated behavior as all the members will be working together which will help them to achieve their goals quickly and accurately. There won't be a problem of getting exhausted and facing excessive pressure as all the members will be working equally on each budget list. Moreover, the middle-level management and the lower level management will be under the guidance of the top-level management that will help them to gain experience. "Bottom-Up" approach will reduce the main problem that is faced in the "Top Down" approach that is inter-departmental confliction. This mainly happens between middle-level management and lower-level management (). It creates an informal environment inside the work premises which leads to an informal bargaining process between the middle-level management (mangers and subordinates) and lower-level management (other employees). This will be avoided in the "Bottom-Up" approach because all the employees will be working in a real environment which will build responsibility, motivation, confidence, and communication between them. The top-level management will also have a positive behavior and attitude towards the middle-level management and lower-level management.
Based on your literature findings (above), critically evaluate the comment that ‘traditional budgeting are constraints on creativity, and the time and the energy spent on budget formulation is better spent elsewhere’.
ANSWER: Traditional budgeting process can implement a scheme or plan of controlling not only the budget but also the activities of the employees. It is the basic approach to evaluating budgets. In some of the financial institutions and banks, this approach is applicable and it utilizes the process of decentralization but nowadays traditional budgeting has become a constraint on creativity (de Vericourt, Hales, Hilary & Samet, 2018). Traditional budgeting has become time-consuming and there is inefficiency in the resources and lack of creativity. It does not possess to make decisions or make a strategic plan for the budgeting process in a business. With time the creativity has changed and traditional budgeting forces on creativity. Nowadays, for doing something creative or doing some other work or activity an employee must be influenced by its attitude, psyche, and logic based on different intuitional constraints. Traditional Budgeting process does not provide resources that will help to build the creativity in work. If there is no creativity then there will be no profit in an organization.
Creativity plays a crucial role in promoting or brands. But, if there is no creativity because of the traditional budgeting process then it is useless to spend time and energy for the formation of the budgeting process. To motivate the creativity this literature has targeted the different types of incentive plans of the employees. The traditional budgeting process has ran-down the profitability of creativity as well as creative ideas. Traditional budgeting can be also known as fixed budgeting. Traditional budgeting was criticized because it used to create rough behavior between the employees and was not flexible. It only consumed time and wasted the available resources but never gave a good result as it did not make any adjustments to evolve or to become better than the competitors.
In 2010, Reebok International Limited launched a new athletic shoe, especially for women, namely Reebok Easy Tone. The first ad-campaign went wrong due to the lack of creativity in the promotional strategies. This happened because the company wanted to follow the approach of traditional budgeting. In the beginning, less number of shoes was sold out because of the promotional strategy that went wrong. Then after a month the company again launched those shoes with a new strategy and approach (bottom-up approach) that had different and innovative ideas that influenced the customers and the sale of the shoes increased to an estimation of $1.5 billion at the end of 2010. By the end of 2011 the estimation increased to $3.5 billion.
This is how it can be evaluated that with the increase in technology, psychology, and even competition between the companies of the same industry, traditional budgeting process has become backdated because the creative and innovative ideas have deteriorated which is must be needed in today's marketing structure (Becker, Mahlendorf, Schäffer & Thaten, 2016). It has become backdated and obsolete and there is very little organization present that is interested in the traditional budgeting process. Therefore, the traditional budgeting process is a timeless and useless process that won't help information on budgets in today's marketing structure.
Based on your literature findings (above), would you recommend the use of budgeting for contemporary organizations for planning and control purposes? Explain.
ANSWER: Budgeting is recommended every organization (small business to large and multinational business) because it helps the organization in making decisions, having strategic plans, evaluating income and expenditures, and controlling the budget of the organization. Moreover, it helps the organization in preparing a business plan which will in turn help to elaborate and achieve the desired goals. It will also help to achieve the targeted market. It is crucial for any organization, especially for the management of the organization. The budgeting process helps to grow cooperation, co-ordinations, motivation, and confidence among the employees of any organization. The budgeting process is important for the operational and strategic objectives that an organization needs to set up or authorize for its good.
Budgeting is used for making future financial planning eventually, which will help to forecast the future profit or loss of any organization. Plans also include market space, demand and supply, inflation rate, pricing of the goods, and income level (Maher, Fakhar & Karimi, 2018). Budgeting also nourishes the performance of an organization by looking after the income and expenditure of the company and by identifying the difference between the actual expenditure and budgeted expenditure. If there is an increase in actual expenditure then the executive and subordinates can anticipate and forecast their plans. It plays an important role in identifying the possible course of action that is also known as growing up the strategy. The budgeting process makes business analytical work firmly because budgeting is generally an analysis of income and expenditures which is completely based on data. Its main work is to cherish the controlling purposes for both managerial and financial aspects of an organization. There is basic connectivity between the organizational goals and performance evaluation of those goals which is embraced and limited by budgeting. The budgeting process helps to embed motivations, communications skills, strategic and managerial accounting, planning, and controlling.
The budgeting process consists of three essentials that also control the economy, they are- budget itself which is linked with household (every individual) and management (organizations and government). Budgeting helps in both short-term and long-term basis which keeps the economy balanced. Though there were several controversies related to budgeting done by the scholars and it has always been a double-sided controversy (Leonardi, Spazzafumo, Marcellini & Gagliardi, 1999). But, ultimately it was made clear that budgeting is a crucial factor not only for an organization but also for the economy as budgeting helps in maintaining and regulating financial and economic controls of the world. From the point of formulation until the point of enforcement budgeting is what every business needs to follow as it is the core for the survival of any organization. There are three different types of budgeting- accrual budgeting, rolling forecasts, and performance budgeting.
The mechanism of planning, performance evaluation, communication, controlling, and operational objectives are trailed by budgeting so that they are smoothly carried out by the organization. In an organization there is always an improved and important step of budgetary allotment which is known as budget creation (Bhimani, Sivabalan & Soonawalla, 2018). Expectations for every part of budgetary allotment in an organization are the responsibility of the organization itself. The remedy for the implementation of control, planning, and performance evaluating purpose is known as the Budgeting process.
Becker, S. D., Mahlendorf, M. D., Schäffer, U., & Thaten, M. (2016). Budgeting in times of economic crisis. Contemporary Accounting Research, 33(4), 1489-1517
Bhimani, A., Sivabalan, P., & Soonawalla, K. (2018). A study of the linkages between rolling budget forms, uncertainty and strategy. The British Accounting Review, 50(3), 306-323
de Vericourt, F., Hales, J., Hilary, G. & Samet, J., 2018. Can capital constraints restrain creativity? The spillover effect of budget constraints on employee creativity. The Spillover Effect of Budget Constraints on Employee Creativity (July 6, 2017). AAA
Leonardi, F., Spazzafumo, L., Marcellini, F., & Gagliardi, C. (1999). The top-down/bottom-up controversy from a constructionist approach. A method for measuring top-down effects applied to a sample of older people. Social Indicators Research, 48(2), 187-216. Retrieved from https://search.proquest.com/docview/197606030?accountid=30552
Maher, M.H., Fakhar, M.S. & Karimi, Z., (2018. The relationship between budget emphasis, budget planning models and performance. Journal of Health Management & Informatics, 5(1), pp.16-20
Mareike, B., Brück, C., Thorsten, K., & Anja, S. (2020). Digitization of the budgeting process: Determinants of the use of business analytics and its effect on satisfaction with the budgeting process. Journal of Management Control, 31(1-2), 25-54. doi:http://dx.doi.org/10.1007/s00187-019-00291-y
Moreira, R., (2018). Budgeting process (Doctoral dissertation)